Public Equities Drove University Endowment Returns in 2023

What allowed the U.C. San Diego Foundation to outperform all of its university endowment peers last year? Its equity-heavy portfolio.

The $1.4 billion university endowment for the University of California, San Diego returned 11.3% in fiscal year 2023, which ended June 30, 2023, the highest reported return of any endowment with more than $1 billion in assets for the period, according to data tracked by NEPC LLC.

The U.C. San Diego Foundation allocated 56.8% of its portfolio to equities, or $779.9 million, as of September 30, 2023, well within the fund’s policy target of between 50% and 75%. Private equity made up 15.4% of the portfolio, with all other classes making up single digit percentages of the total endowment pool.

Interestingly, the foundation allocated 30.3% of its assets to an iShares S&P 500 tracking exchange-traded fund, with the S&P 500 returning 19.6% for the fiscal year. According to NEPC, the foundation’s equity holdings were responsible for 90% of the fund’s investment returns for the fiscal year.

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The U.C. San Diego Foundation is not alone. The University of Wisconsin-Madison endowment, the third-best-performing endowment of fiscal 2023, posted a 10.5% return, also a result of heavy allocation to equities (58.3%, as of June 30, 2022). The University of Miami’s endowment, ranked second in fiscal 2023 at 10.9%, does not publicly release detailed allocation results.

Higher allocation to equities and lower allocation to alternatives was a common theme among the endowments of other top performing institutions. The University of Nebraska Foundation, Carleton College, the University of Illinois Foundation and the University of California system’s endowment were the next-best-performing university endowments of the year, returning 9.8%, 9.3%, 9.0% and 8.8%, respectively.

These endowments had equity allocations of 57.7%, 40%, 60.2% and 52.4%, respectively. Traditionally, endowments with larger allocations to alternatives have outperformed their peers, a model pioneered by Yale’s late CIO, David Swensen.

Weak Alts Returns in Fiscal 2023

Of the 62 endowments with assets of more than $1 billion tracked by NEPC, six had negative returns in fiscal year 2023. The University of North Carolina, Duke University, Princeton University, Vanderbilt University, Washington University St. Louis and MIT endowments returned losses of 0.4%, 1.0%, 1.7%, 2.0%, 2.3%, and 2.9%, respectively.

What united these funds was their very high allocations to alternative investments, which generally underperformed other asset classes in the fiscal year, most notably private equity.

“The primary cause of the weak performance was the -12.3% return on the Investment Fund’s Private Equity asset class,” wrote the University of North Carolina endowment’s leadership in the fund’s fiscal 2023 report. “This loss offset the gains generated by the Investment Fund’s public equity holdings that benefitted from the strong performance in global equity markets.” The fund does not publicize the breakdown of its asset allocation.

Duke University allocated 57% of its assets to equities but combines both public and private equities into this category. The Princeton University Investment Co. allocated 30% of its portfolio to private equity, while Vanderbilt allocated 36% to private assets. Washington University St. Louis allocated 58.3% of its assets to private investments, while MIT allocated roughly 34.35% of its portfolio to private equity.

“Fiscal year 2023 … was a year of generally muted returns for asset classes outside of public equities,” wrote Narv Narvekar, CEO of the Harvard Management Co., in the fund’s fiscal 2023 letter. “While public markets were flat or negative during the first half of FY23, the dramatic equity rally during the second half of FY23 changed the picture meaningfully.” HMC returned 2.9% in fiscal 2023 and holds 39% of its $50.7 billion endowment in private equity.