US Endowments Average -0.3% Returns in 2012 Fiscal Year

(October 26, 2012) – If endowments’ 2012 fiscal year was a wine vintage, there would be a lot of unsold cases gathering dust right now.

A preliminary study of 463 college and university endowment financial data shows an average return of -0.3% for the most recent fiscal year. That figure, calculated by the National Association of College and University Business Officers (NACUBO) and Commonfund Institute, is a marked drop from the 2011 mean of 19.2%.

Endowments’ fates tended to vary according to their size—but not by much. Funds with assets worth over $1 billion produced the best returns, averaging 1.2%, and small funds (under $25 million) came in second at 0.2%. Midsized endowments fared worst, with the lowest category being $25 million to $50 million, which posted a 0.8% loss.

“The data for fiscal year 2012 as well as for all longer periods confirm the historic pattern of outperformance by larger institutions, chiefly those with assets in excess of $1 billion,” said John Walda, NACUBO president and chief executive officer, and Commonfund Institute Executive Director John Griswold, in a joint statement. “This pattern was interrupted in the financial crisis of 2007 to 2009, when smaller institutions tended to outperform owing to their larger allocations to fixed income and short-term securities. This was short-lived, however, as larger institutions have produced the best returns over the fiscal years 2010 to 2012 period.”

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A handful of large and prominent endowments did manage to pull off passable gains. The Massachusetts Institute of Technology Investment Management Company added 8% to the university’s $10.3 billion fund, while Dartmouth College currently leads the Ivys with 5.8% gains.

The world’s largest university endowment, Harvard’s $30.7 billion fund, lagged behind even the lackluster average. Its portfolio lost 0.05% of its value in fiscal year 2012, suffering deep losses in its substantial emerging markets equities portfolio. The returns report noted that Harvard “carries relatively more exposure to both foreign and emerging markets than many of our peers.” While the Cambridge, Mass.-based endowment has roughly equal allocations to US, international developed, and emerging markets equities, according to its report, frontier stocks made up only 5.4% of Dartmouth’s portfolio at the close of fiscal year 2011. (The endowment has not yet released its full 2012 report.)

The NACUBO-Commonfund Institute study noted that asset allocation varied widely, even among funds of similar size. Still, endowments worth more than $1 billion averaged only 10% allocation in domestic equities, while the smallest fund category (less than $25 million) sunk about 37% of their assets into homegrown stocks.

The report noted that “perhaps the most significant trend in higher education asset allocation over the past decade has been growth in allocations to alternative strategies, especially among larger institutions.”

Researchers are still gathering data, and expect their final tally to include more than 800 institutions.

(October 23, 2012) – The US Securities and Exchange Commission (SEC) has enacted the latest in a string of mandates to increase transparency and accountability in the private advisory and consultant industry.

The commission is pushing through the final stages of registering private fund advisors. More than 1,500 have registered since the Dodd-Frank Act made it mandatory. (As of last week, they will have to sit SEC exams, as well.)

“Prior to the Dodd-Frank Act, regulators only saw a slice of the pie but didn’t know how big the pie even was,” said Mary Schapiro, chairman of the SEC, in a statement. “The law enables regulators to better protect investors by providing a more comprehensive view of who’s out there and what they’re doing.”

The new regulations give the SEC a more focused look at the group it really wants to keep an eye on: advisers to hedge funds and other private funds who manage more than $100 million. Advisories below that threshold have been moved out of the SEC’s oversight to state regulators.

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“Working together throughout the switch, state securities regulators and the SEC have demonstrated the effectiveness and efficiency of government regulation of investment advisers,” said A. Heath Abshure, Arkansas’ securities commissioner and president of the North American Securities Administrators Association. “The vast majority of switching advisers have made a smooth transition to state regulation and we are committed to working with those firms that continue to diligently pursue their state investment adviser registrations.”

To date, more than 2,300 of them have made the transition—and the SEC is pushing the stragglers out the door.

A notice went out today identifying 293 advisories that do not appear to meet the $100 million asset threshold and have failed switch regulators. The headline: “Notice Of Intention To Cancel Registrations Of Certain Investment Advisers.” In the document, the SEC published a list of all 293 firms, many of which serve institutional clients.