Academic Endowments Post Sluggish Returns for Fiscal 2023

The trend of low returns for academic endowments continues amid a turbulent time for investments, with uninspiring reports for the 2023 fiscal year that ended in June released recently by Yale, Bowdoin, Duke and Stanford.

The Yale Investment Office, manager of the university’s $40.7 billion endowment, returned 1.8% in the period, representing a gain of $759 million, according to a news release. That fell below the 10.9% average return over the past 10 years. The value of the university endowment decreased in fiscal 2023, to $40.7 billion from $41.4 billion, after operational spending and donations.

Yale only issued the press release, rather than a full endowment report, for the second consecutive year, thus not revealing its allocation. Yale has been known as a pioneer in investing in alternatives under legendary CIO David Swenson, who passed away in May 2021.

Bowdoin College also reported its low-end endowment returns this week, a meager 0.6%. The flat performance was attributed to current economic headwinds.

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“It has been a difficult period for investors—including for Bowdoin—with the multiple headwinds of surging inflation, higher interest rates, a land war in Europe, and a technology market unwind,” Bowdoin President Safa Zaki said in the news release. “Against this challenging backdrop, our investment team, led by Niles Bryant, and our Investment Committee, have done an excellent job of protecting the value of the Bowdoin endowment and preserving much of the extraordinary gains recorded in fiscal 2021.”

The endowment of the Brunswick, Maine-based school, valued at $2.4 billion at the end of the fiscal year, has historically enjoyed double-digit results, with three-, five- and 10-year returns of 13.7%, 11.5% and 11.7%, respectively.

Duke University‘s 2023 endowment results were in the red: DUMAC Inc., the school’s investment management company, reported a loss of 1%, far below its goal of an annual real return rate of 5%. The fiscal 2023 performance fell way beneath its long-term record, 9.8% annually over 10 years. For the 2023 fiscal year, the endowment dipped to $11.6 billion, off its 2021 peak of $12.7 billion.

Stanford University’s endowment returns were the best of the four, although down from its historical record. The endowment returned 4.4% in its merged pool for the June-ending period. Stanford’s five- and 10-year returns were 9.5% and 9.4%, respectively. The value of the endowment was $40.9 billion at the end of the fiscal year.

According to Stanford, its rocky investments in venture capital offset strong gains in other asset classes.

“Strong results in most asset classes during the past year were partially offset by losses in our venture capital and growth equity portfolios, continuing a correction that began in 2022,” said Robert Wallace, CEO of Stanford Management Co. “Viewed over multiple years, our disciplined and diversified investment approach has delivered attractive returns with moderate volatility.”

As universities begin to report their fiscal year 2023 endowment results, there is a common theme across the board: Endowment returns are sluggish, compared with the overall markets. The low-single-digit and even negative results of these four schools stand in marked contrast to the MSCI All Country World Index, which returned 14% over the academic fiscal 2023 period.

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Tags: Bowdoin College, bowdoin investment committee, David Swensen, Duke, DUMAC, Endowments, Returns, Safa Zaki, Stanford, Venture Capital, Yale Investment Office

As data are released about endowment returns in fiscal 2023, funds in the Ivy League and at Stanford are expected to have underperformed the markets, according to Markov Processes International.

While Ivy League endowment funds rebounded from losses suffered in fiscal 2022, these funds are unlikely to have outperformed traditional 60/40 and 70/30 plans in fiscal 2023, which ended June 30, because the endowments have larger allocations to venture capital, according to Markov Processes International Inc., an investment management research and analytics provider. Most institutions report their returns for fiscal 2023 in the fall, and several, including Yale University and Stanford University, were released this week.

The projections come from MPI’s transparency lab, which aims to shed light on the reporting processes of Ivy League and other notable institutions. They tend to only report endowment returns once per year, which makes analyzing and predicting endowment returns difficult.

“Large university endowments are notoriously opaque, providing little indication of what results to expect until they officially release their results, making it a regular autumn spectacle,” said Michael Markov, MPI’s co-founder and CEO, in an MPI report. “But even then, after the annual returns are published, there’s little indication of both sources of returns and risks that were taken to achieve them. We apply our most advanced techniques to publicly sourced data to shed light on this important segment.”

The MPI Transparency Lab tracker estimates that endowments of the eight schools returned, on average, 7.13% in fiscal 2023, reversing the prior year’s trend that saw a loss of 2.39% for the While MPI projects positive endowment returns for the nine schools from fiscal 2023, they are expected to lag a traditional 60/40 stock-to-bonds portfolio (9.36%) during the period that ended in June. MPI projects a 70/30 portfolio to return 12.9% over the same period. MIT and Stanford are tracked, but not included in the Ivy League average.

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Ivy League universities typically have some of the largest endowments in higher education. Harvard University’s endowment had $50.9 billion in assets under management as of fiscal 2022, the largest of any university. The group’s smallest total comes from Brown University, with an endowment of $6.5 billion, also through fiscal 2022.

MPI Projections Precede Release of More Extensive Data

While the National Association of College and University Business Officers will not release its next Study of Endowments report until February 2024, MPI’s research—which does not include management fees—provides a window into what direction these pensions are headed.

The best-performing endowments, according to MPI, are expected to be those with the greatest exposure to global equities, specifically technology stocks. Over the 12-month period ending in June 2023, the S&P 500 Index returned 19.4% and the MSCI EAFE returned 19.6%. The S&P 500 information technology index returned 40% in the same period.

Although endowments with high exposure to technology are projected to have performed well in fiscal 2023, endowments with significant exposure to venture capital are projected to have lagged. MPI expects VC returns to have been negative 10% in the second quarter of 2023. Venture capital will be the only asset class with a significant negative impact on fiscal 2023 results, according to MPI data.

“This year, we anticipate a notable shift, as more traditional portfolios are expected to outperform the ‘endowment model,’ MPI CEO Michael Markov wrote in a LinkedIn post.

MPI expects several universities, including Brown, Columbia University, Dartmouth College and the University of Pennsylvania, to report higher-than-average returns for 2023. It projects Harvard and Princeton University to underperform.

Yale, Stanford Both Underperform 2023 Projection

MPI projected Yale to have returned 5.29% in fiscal 2023, but Yale itself announced a return of 1.8% on October 10. According to MPI, Yale underperformed that projection due to a record number of unfunded liabilities in buyouts; a low level of distributions from PE/VC investments that would fund commitments and expenses; underperforming newer vintage PE investments; and the need both to meet increased spending commitments and to sell off liquid assets, missing a rally in equities.

Stanford announced on Thursday a 4.4% return in fiscal 2023, slightly below MPI’s estimate of 6.42%. Stanford attributed its underperformance—as compared with Cambridge Associates’ 6.9% median return for university endowments—to losses in its venture capital investments, in line with MPI’s projections.

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Tags: Endowments, Ivy League, Markov Processes International, Michael Markov, Venture Capital