Investment return of 11.3% brings Yale endowment value to $27.2 billion

Yale’s endowment earned an 11.3% investment return (net of fees) for the year ending June 30, 2017. The endowment value increased from $25.4 billion on June 30.
A photo of the Yale campus.

Yale’s endowment earned an 11.3% investment return (net of fees) for the year ending June 30, 2017. The endowment value increased from $25.4 billion on June 30, 2016, to $27.2 billion on June 30, 2017.

Spending from the endowment, which is the largest source of revenue for the university and supports faculty salaries, student scholarships, and other expenses, for Yale’s 2018 fiscal year is projected to be $1.3 billion, representing approximately 34% of the University’s net revenues. Endowment distributions to the operating budget have increased at an annualized rate of 9.2% over the past 20 years. Those distributions support, among other priorities, Yale’s commitment to meeting the full financial need of every student enrolled in Yale College.

The university’s longer term results remain in the top tier of institutional investors. Yale’s endowment returned 12.1% per annum over the 20 years ending June 30, 2017, exceeding broad market results for domestic stocks, which returned 7.5% annually, and for domestic bonds, which returned 5.2% annually. Relative to the estimated 7.3% average return of college and university endowments, over the past 20 years Yale’s investment performance added $24.3 billion of value in the form of increased spending and enhanced endowment value. During the 20-year period, the endowment grew from $5.8 billion to $27.2 billion.

Long-term asset class performance

Yale’s 20-year asset class performance remains strong. Domestic equities returned 12.2%, besting the benchmark by 4.7% annually. Foreign equities produced returns of 14.1%, surpassing the composite benchmark by 7.8% annually. Absolute return produced an annualized return of 8.9%. Leveraged buyouts returned 12.6%, while venture capital returned 106.3%. Real estate and natural resources contributed annual returns of 10.3% and 15.2%, respectively.[1]

Asset allocation

Yale continues to maintain a well-diversified, equity-oriented portfolio, with the following asset allocation targets for fiscal 2018:

Absolute Return:          25.0%

Venture Capital: 17.0%

Foreign Equity:   15.5%

Leveraged Buyouts:    14.0%

Real Estate:                 10.0%

Bonds and Cash:         7.5%

Natural Resources:      7.0%

Domestic Equity: 4.0%

Yale targets a minimum allocation of 30% of the endowment to market-insensitive assets (cash, bonds and absolute return). The university further seeks to limit illiquid assets (venture capital, leveraged buyouts, real estate and natural resources) to 50% of the portfolio.

Yale’s spending and investment policies provide substantial levels of cash flow to the operating budget for current scholars, while preserving endowment purchasing power for future generations. Approximately a quarter of spending from the endowment is specified by donors to support professorships and teaching. Nearly a fifth is dedicated to scholarships, fellowships and prizes. A quarter is available for general university purposes. The remaining endowment funds are donor-designated to support specific departments or programs.

[1] Yale employs time-weighted returns to assess manager performance in marketable equities and absolute return, because the cash flows to and from the asset classes are determined by the university. Returns reported for leveraged buyouts, venture capital, real estate, and natural resources are dollar-weighted internal rates of return, because the managers of illiquid asset classes determine when to buy and sell assets.

Yale’s 106.3% venture capital return over the past 20 years is heavily influenced by large distributions during the Internet boom. Since such a calculation assumes reinvestment of proceeds from the portfolio during the period at the same rate of return for the rest of the period, it is inappropriate to compound the 106.3% return over the 20-year time horizon. For reference, our venture capital portfolio’s 20-year time-weighted return is 25.5%. The other illiquid asset classes are not subject to similar distortions.

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