MIT, Brown Endowments Report Over 50% Returns for 2021

The Massachusetts Institute of Technology (MIT) and Brown University endowments each returned more than 50% for the fiscal year ending June 30, with MIT’s endowment returning 55.5% and Brown’s endowment returning 51.5%

For MIT, it was the fund’s strongest annual performance in more than 20 years and raised its portfolio’s asset value to $27.4 billion. As a result, the university plans to increase the endowment’s payout by 30% starting in fiscal year 2023, which begins July 1, 2022.

“This is a once-in-a-generation opportunity, and we must use it in a way that inspires big ideas and builds a stronger MIT at a time when the world needs breakthroughs in science more than ever,” President L. Rafael Reif said in a statement.

MIT’s investments that are managed by external managers include its allocations in absolute return; domestic, foreign, and private equity; real estate; and real asset commingled funds. Private equity is the portfolio’s biggest holding at nearly $11.7 billion, or almost 43% of its total asset value. Private equity investments have buoyed endowment portfolios this past year, helping them to post a median gain of 27% during fiscal year 2021, according to Wilshire Trust Universe Comparison Service data.

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“We identify exceptional investment managers from the bottom up and build long-duration partnerships with them rather than focusing on top-down asset-allocation targets,” Chief Financial Officer (CFO) Marianthe Mewkill said in an interview with MIT’s alumni newsletter Corridor. “We spend enormous effort identifying investment managers who are likely to thrive over the long term: those with patience, high ethical standards, a focus on high-quality assets, and superb investment judgment.”

Meanwhile, Brown University’s endowment portfolio returned 51.5% during fiscal year 2021, ahead of its benchmark portfolio’s 43.1% return, to raise its endowment’s market value to $6.9 billion.

Over the fiscal year, Brown’s endowment contributed $194 million to the university’s operating budget, which represents 15% of the total budget. More than 3,300 individual endowed funds make up Brown’s endowment, which provides funding support for university initiatives such as Brown’s plans to contribute $125 million toward creating an academic health system for Rhode Island.

Brown’s portfolio of investments can divided into three major classes: public equity, private equity, and absolute return. Public equity investments represent 19.8% of Brown’s endowment and generated a 58.9% return. Private equity accounts for 39% of the endowment and returned 86.8%. And absolute return accounts for 24.8% of the endowment and generated a 15.3% return.

Brown said that with pandemic-related expenses of more than $55 million for COVID-19 testing, personal protective equipment (PPE), and emergency funds to allow students to study remotely, and revenue declines of more than $30 million due to the cancellation of some programs, the university ended the fiscal year with a $52.2 million operating budget deficit.

“Over time, the positive impact of this year’s historic return will have a transformational effect on Brown’s financial support for the work of current students, faculty, and staff, for future generations of scholars, and the impact we can make on some of the most pressing challenges facing society,” Provost Richard Locke said in a statement.

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Tags: Brown University, Endowments, Jane Dietze, L. Rafael Reif, Massachusetts Institute of Technology, MIT, Private Equity, record returns

You can’t judge a pension plan by its funded level, according to the American Academy of Actuaries, which says in a new report that it’s “a myth” that any pension can be deemed healthy simply based on whether its funded ratio is at least 80%.

“While the funded ratio of a pension plan is certainly a useful measure, its reporting of 80% funding—or any other funded ratio percentage—simply doesn’t provide enough information to accurately gauge its financial health,” American Academy of Actuaries Senior Pension Fellow Linda Stone said in a statement. “A plan that is funded at 80% at a single point in time could be anywhere in the spectrum from excellent to poor financial condition, depending on other factors.”

Although the academy says it’s unknown exactly when and how an 80% ratio became the benchmark for a healthy pension fund, the report notes that federal law uses that figure to trigger certain changes. For example, the Pension Protection Act of 2006 (PPA) limits benefit improvements and lump-sum payments for private-sector single-employer plans that are below 80% funded. Also under the same act, multiemployer plans with a funded ratio below 80% face stricter funding rules.

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The report said determining the financial health of a pension requires more than just knowing its funded status. Other factors, such as knowing the size of any shortfall compared with the resources of the plan sponsor, can also be a big contributor to plan health. The report also said that a plan with a funded ratio below 80% is not necessarily unhealthy either. It points out that a funded ratio only measures a plan’s status at one moment in time, and that even responsibly funded plans’ ratios can vary significantly from one year to the next due to external events.

The report said funded ratios should be examined over several years to determine trends, while taking the economic situation at each time into consideration. For example, high funded ratios typically occur after periods of strong economic growth and investment returns, such as the years before the 2008-2009 financial crisis. Likewise, lower funded ratios can be expected after years of poor investment returns, as many plans saw after the Great Recession.

“A plan’s funding strategy should have a built-in mechanism for achieving the target of at least 100% funding over a reasonable period of time,” the report said. “Provided the plan sponsor has the financial commitment and the means to make the necessary contributions, a particular funded ratio does not necessarily represent a significant problem.”