Yale University Releases Endowment Figures
Yale’s endowment produced a negative 24.6% return in the fiscal year ending June 30, 2009, a period marked by a financial crisis during which global equity markets declined by nearly 30%.
The endowment value fell to $16.3 billion based on investment losses of $5.6 billion, operating budget distributions of $1.2 billion, and gifts and other adjustments of $200 million, the University’s Investments Office reported. The endowment was valued at $22.9 billion on June 30, 2008.
Spending from the endowment in the University’s 2009-10 fiscal year is expected to total $1.1 billion. The endowment’s contribution equals approximately 42% of the University’s net revenues and represents Yale’s single largest source of support. Endowment distributions to the operating budget have nearly tripled in the last decade.
Yale’s endowment returned an annualized 11.8% over the past ten years, surpassing by a wide margin annual results for domestic stocks of -1.2% and domestic bonds of 6.0%. Similarly, Yale’s five-year annualized return of 8.7% outperformed domestic stocks by 10.1% and domestic bonds by 3.6% per year. Relative to the average return of college and university endowments, over the past decade Yale’s investment performance added over $10 billion of value in the form of increased spending and enhanced endowment value. During that time, the endowment grew from $7.2 billion to $16.3 billion.
From an analytical perspective, a decline of nearly 25% falls in the range of expected outcomes. If a portfolio produces returns of 41% (as Yale’s did in fiscal 2000) and 28% (as Yale’s did in fiscal 2007), then there exists the possibility that the portfolio might produce a substantial double-digit decline. To deal with anticipated volatility in returns, the University follows a disciplined spending policy designed to dampen the influence of market volatility on spending levels.
In fiscal 2009, equity exposure hurt results, diversification failed to protect asset values, and illiquidity further detracted from performance. With more than 95% of assets invested to generate equity-like returns, the portfolio’s performance suffered in an environment characterized by widespread declines in marketable and non-marketable equity values. The University’s holdings of U.S. Treasury bonds, which provided a rare safe haven last year, returned 5.1%. Yale’s allocation of only 4% to bonds, motivated by fixed income’s unattractiveness to long-term investors, provided little protection to the portfolio.
Among Yale’s asset classes, marketable assets performed relatively well, with absolute return, domestic equity, foreign equity, and fixed income in aggregate declining by 13.1%. As in previous years, active management added substantial value to the University’s portfolio. Absolute return posted a credible -9.1% return. Even though the University’s absolute return managers failed to achieve the goal of producing a positive return in fiscal 2009, the hedged portfolio produced results far superior to returns generated by equity markets. The University’s domestic equities fell by 18.6%, surpassing their Wilshire 5000 benchmark by 7.5%. Foreign developed equities shrank by 14.4%, posting a 17.0% advantage over the MSCI EAFE Index. Emerging market equities decreased by 19.2%, outperforming the MSCI Emerging Markets Index by 8.8%. Strong one-year relative performance in each marketable equity category contributed to ten-year records in which domestic equity showed annual excess returns of 8.7%, foreign developed equity of 10.0%, and emerging market equity of 6.9%.
Yale’s private equity holdings in leveraged buyouts and venture capital posted a 24.3% loss. Real assets, Yale’s largest asset class, produced the worst performance with a decline of 33.9%, thereby accounting for the largest portion of the endowment’s losses. Notably, in a year when oil prices dropped from $140 on July 1, 2008 to $72 on June 30, 2009, Yale’s energy investments dropped a commensurate 47.4%. From a longer term perspective, over the decade ending June 30, 2009, Yale’s private equity returned 24.0% per annum and real assets returned 13.4% per annum, with both results far exceeding the returns generated by marketable equities and bonds.