Yale's Endowment Performance Edges Harvard's

Yale reported sharp losses, but narrowly bested Harvard's results--preserving a large margin of long-term superior investment performance.

Yale University announced today that investment returns on its endowment were negative 24.6 percent during the volatile fiscal year ended last June 30. That result was slightly better than the 27.3 percent investment losses Harvard Management Company (HMC) reported on September 10. In all, the value of Yale's endowment declined 28.8 percent during the fiscal year, from $22.9 billion to $16.3 billion, reflecting investment losses of $5.6 billion, spending in support of the university's operations of $1.2 billion, and gifts received and other adjustments totaling $200 million. At Harvard, where distributions in support of operations were $1.7 billion during fiscal year 2009, the value of the endowment decreased 29.5 percent, from $36.9 billion as of June 30, 2008, to $26 billion one year later.

Yale's announcement highlighted the damage wrought by adverse financial markets worldwide, particularly on endowments--like Yale's and Harvard's--managed for long-term appreciation:

"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."

The latter comments, on the long-term performance of private equity and real assets, closely echoed those made by Jane Mendillo, HMC's president and CEO.

Yale's 10-year annualized investment return on endowment assets declined to 11.8 percent, according to its report. HMC reported that the comparable figure for Harvard's endowment now stands at 8.9 percent, above its long-term goal of 8.25 percent annualized gains.

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