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Research

Ivy Endowments Have Topsy-Turvy Year in Fiscal 2017

Data shows Ivy League endowments are increasing their focus on private investments.

By Michael Katz

For Ivy League endowments, fiscal 2017 was an atypical year, as underperformers outperformed, and the outperformers disappointed, according to investment research firm Markov Processes International (MPI). 

“It was definitely an interesting year as far as asset allocation and the returns that the endowments got from asset classes,” said Sean Ryan, senior research analyst at MPI, in an interview with CIO. Ryan said the most surprising thing about 2017 was that a lot of the public markets heavily defeated the private investments.

“You see endowments like Cornell or University of Pennsylvania that are more geared toward public markets versus private investment as compared to Yale or Harvard,” said Ryan, “and they actually performed quite well.”

Despite the underperformance of private equity, Ryan said MPI data shows that Ivy League endowments are increasingly moving toward a higher risk/reward portfolio.

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 “We looked at data from 2005 to 2017, and based off of our exposures, we‘ve seen increased movement toward private investment,” he said.

Brown and Cornell bucked their historical trends by outperforming Yale, Princeton, and Harvard. Over the past 11 fiscal years, either Brown, Cornell, or both were among the bottom two performers among Ivy League endowments.

Unlike fiscal year 2016, 2017 was a strong one for most endowments, according to the report, which said every Ivy League endowment, except Harvard, beat the 60% equities, 40% fixed-income portfolio. Only Columbia and Princeton have beaten the 60-40 portfolio on average over the past 10 years.

For 2017, all endowments reported returns that were well above their historical payouts of 5%, even when including 1.65% for inflation. Dartmouth was tops among its Ivy peers with a return of 14.60%, while University of Pennsylvania was a close second with 14.30%. The report said Harvard continued its six-year trend of performing at or near the bottom of the class with 8.10% returns in fiscal year 2017.  Yale, which has been among the top three every year since 2011, delivered relatively mediocre returns of 11.30%.


The report said that rallying public equity markets boosted Ivy endowment returns during the year. It also said longer-term trends show that the Ivy endowments continue to increase exposures to illiquid investments, which is more like the Yale model of a high-risk, high-return portfolio.

Exposure to private equity was the largest contributor to aggregate endowment performance for the year, said MPI. Hedge funds, US equity, venture capital, real estate, foreign developed equity, and emerging markets also contributed positively to endowment performance. Natural Resources was the only major asset to contribute negatively to performance in fiscal year 2017.

All asset classes, except for bonds and cash, performed significantly better during 2017 than they did in 2016, according to MPI. The largest magnitude of difference was in foreign equities. Developed foreign equities returned 30.42% more in fiscal year 2017 than in fiscal year 2016, and emerging markets returned 35.81% more. Yale has the lowest exposure to these asset classes, and the three highest-performing endowments—Dartmouth, Pennsylvania, and Columbia—had the highest exposure.

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Home > News > Regulation > Houston Voters Approve $1 Billion in Pension Bonds
Regulation

Houston Voters Approve $1 Billion in Pension Bonds

$750 million will go to the city’s police pension, and $250 million to the municipal workers' pension.

By Michael Katz

Houston residents voted overwhelmingly to pass a $1 billion pension bond referendum that will put $750 million into the police pension and $250 million into the municipal workers’ pension to improve their funding levels, while lowering the city’s annual pension obligation.

The city has struggled with its pensions since the late 1990s, when benefit increases caused pension costs to surge. The police and municipal pension funds agreed to enact cuts to reduce the costs, but that led the pensions to take on debt totaling $8.2 billion.

If the measure didn’t pass, as much as $1.8 billion of the $2.8 billion in benefit cuts in the reform bill would have been rescinded, adding tens of millions of dollars in costs to the city budget overnight, according to the Houston Chronicle.

The bonds were used by Houston Mayor Sylvester Turner as an incentive to get the police and municipal pension systems to agree to additional cuts, and to boost both pension plans’ funding levels, reported the Chronicle.

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“It doesn’t mean that all of our financial problems are solved,” Turner said, according to the Chronicle. “But it does mean that our outlook is much better.”

The pension reforms recalculate the city’s payments to erase the pensions’ debt over three decades, cut benefits by $2.8 billion, and ensure the city’s future pension costs are capped.

Proposition A “will make good on funding promises to public employees’ pension systems,” said Max Patterson, executive director of the Texas Association of Public Employees Retirement Systems (TEXPERS), in a statement.  “TEXPERS encourages all Texas cities to keep pace with the funding required to maintain the health of their employees’ pension funds.”

Proposition A is also intended to quell rating agencies’ concerns about Houston’s pension debt having a negative impact on the city’s financial outlook.

 

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