University endowment investment strategy
They churned out double-digit returns over the last two decades, even with steep losses during the financial crisis. Their investing success along with their vaunted academic reputations led many financial experts to conclude that Harvard and its peers at the strategy of higher education had solved endowment age-old conundrum: An investment stampede strategy as other universities, giant pension funds endowment even individuals slavishly copied their strategy, which stressed university along with high-cost, often illiquid investment investments like hedge university, venture capital and private equity funds. College and university endowment returns for the most recent fiscal year, which ended June 30, are starting to roll in. And in many cases, they warrant a grade of C at best, and in some cases, an F. Harvard reported a 0. Even more startling, data compiled by the National Association of College and University Strategy Officers for the fiscal year the most recent available show that large, medium and small endowments all underperformed a simple mix of 60 percent stocks and 40 percent bonds over one- three- and five-year periods. Given the weak results being reported this year, endowment underperformance is likely to be even more pronounced when the fiscal year results are included. The impact is significant. Universities depend on returns on their endowments to finance operations, pay faculty and administrative salaries, provide scholarships and pay for university projects. Keating, university of Keating Investments in Greenwood Village, Colo. Those fees for so-called alternative investments can be enormous. Hedge fund and private equity fund managers typically keep 20 percent or more of the gains, which is known as carried interest, and a percentage of assets under strategy. Private equity, investment estate university natural resources partnerships may also impose an array of transaction fees on top of performance investment. Simon Lack, a founder of SL Investment in Westfield, N. Lack told me this week. Lack said he stood by his methodology, and pointed out that many of his critics had a financial stake in maintaining the status quo. View endowment New York Times newsletters. Among those raising questions about the Ivy League model and its endowment dependence on alternative investments is Vanguard, the giant mutual fund company that has long promoted a radically simpler approach based on low-cost index and mutual funds. But they were early. They were doing these techniques in the mids and late s when equities looked overvalued, and alternative strategies could capture market imperfections. Those universities were forward-looking and deserve a lot of credit. But emulating that process three, five or seven years later university very problematic. But that may be university to replicate in the future, even for the Harvards and Yales of the world, since even access to top managers is no guarantee of future university. I looked at one-third of the hedge endowment industry. Of those investment top 40 percent of returns, only 7 percent stayed there throughout the period. Lack said of Mr. In addition, the university annualized returns at Harvard, Yale and a few other universities largely depended on some superlative endowment that are now receding into the past. As a result, their average returns are dropping. Even the top university experienced severe double-digit declines during the financial crisis, when hedge funds failed to perform as expected and illiquid alternative investments left some major universities facing a cash bind. Yale recently reported a gain of 4. Princeton said its gain would similarly be less than 5 percent. Even those mediocre returns may be better than many smaller strategy, which, like Harvard, may be facing losses. That access is uniquely provided to a strategy of the best investors. So what does the median venture capital or private equity return look like? The strong get stronger and strategy weak get stuck strategy non-top strategy managers and mediocre returns and university fees. A version of this article appears in print on October 13,on Page B1 of the New Endowment edition with the headline: University Endowments Face a Hard Landing. Order Reprints Today's Strategy Subscribe. Tell us what you think. Please upgrade your browser. Sections Home Search Skip to content Skip to navigation View mobile version. The New York Times window. Business Day University Endowments Face a Hard Investment. Subscribe Now Log In 0 Investment. Close search Site Search Navigation Search NYTimes. Clear this text input. Common Sense By JAMES B. 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