Yale endowment grows by 8.9%, a gain of $1.4 billion

Yale’s endowment earned an 8.9% investment return for the year ending June 30, 2010.

The endowment value rose to $16.7 billion as a result of investment gains of $1.4 billion, operating budget distributions of $1.1 billion, gifts of $136 million, and adjustments of negative $70 million. The endowment totaled $16.3 billion as of June 30, 2009.

Spending from the endowment for the University’s 2010-2011 fiscal year amounts to $986 million, representing approximately 38% of Yale’s net revenues. Endowment distributions to the operating budget have grown by nearly three-fold in the last decade.

The University’s longer-term results remain in the top tier of institutional investors. Yale’s endowment returned 8.9% per annum over the 10 years ending June 30, 2010, surpassing results for stocks, which returned a negative 0.7% annually, and for bonds, which returned 6.5% annually. Relative to the estimated 4.2% average return of college and university endowments, over the past decade Yale’s investment performance added $7.9 billion of value in the form of increased spending and enhanced endowment value. During the 10-year period, the endowment grew from $10.1 billion to $16.7 billion.

Over the past two decades, Yale’s endowment generated returns of 13.1% per annum. Compared to the 8.8% average return of college and university endowments, Yale’s investment performance added $12.1 billion of incremental value. During the 20-year period, the endowment grew from $2.6 billion to $16.7 billion.

Performance discussion

In fiscal 2010, Yale’s relative performance suffered from a large exposure to real assets, which for the second successive year produced the worst result of any of the endowment’s asset classes. Real assets holdings of real estate, oil and gas, and timber generated a loss of 4.5%. While real assets provide protection against inflation, which may prove beneficial in today’s highly uncertain global economy, in weak economic environments real assets tend to produce poor returns.

Domestic equity returned 20.9% for the fiscal year, surpassing the benchmark return by 4.7%. Similarly, foreign equity exceeded its benchmark by a margin of 6.9% with a return of 15.0%. Yale’s absolute return portfolio produced a 12.4% return, consistent with both expectations and past experience. The University’s private equity portfolio rebounded from crisis-induced losses with a robust return of 18.1%.

Yale’s 10-year asset class performance remains strong. Domestic equities returned 6.7%, besting the benchmark by 7.4% annually. Foreign equities produced returns of 13.8%, surpassing the benchmark by 8.0% annually. Absolute return produced an annualized return of 11.1%, while the illiquid asset classes of private equity and real assets contributed annual returns of 6.2% and 10.8%, respectively.

Asset allocation

Yale continues to maintain a well-diversified, equity-oriented portfolio, with the following asset allocation targets:

• Private Equity: 33%
• Real Assets: 28%
• Absolute Return: 19%
• Foreign Equity: 9%
• Domestic Equity: 7%
• Bonds and Cash: 4%