Washington University, Duke Report Record Fiscal 2021 Returns

The endowments of Washington University in St. Louis and Duke University reported record annual returns of 65% and 55.9%, respectively, for the fiscal year that ended June 30. The massive gains helped the endowments’ asset values rise to $15.3 billion for Washington University and $12.7 billion for Duke.

The Washington University Investment Management Company (WUIMC), which oversees the university’s managed endowment pool, also reported three-, five-, and 10-year annualized returns of 24.9%, 19.2%, and 12.2%, respectively. Chancellor Andrew Martin attributed the robust returns to the work of Chief Investment Officer Scott Wilson and his investment team.

“I’m frankly blown away by these results and incredibly grateful to the talented WUIMC team for giving us this truly transformative opportunity,” Martin said in a statement. “This remarkable return will allow us to take a huge step forward.”

For Duke, the results were a major turnaround from last year, when the endowment’s asset value ended fiscal year 2020 down $100 million to $8.5 billon after the investment portfolio managed to earn a meager 0.7%.

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Duke said that each year, it aims to spend between 4.5% and 5.5% of the average value of endowment funds annually over the three previous calendar years to finance student financial assistance, faculty salaries, facilities, and research. For the 2020-21 fiscal year, the endowment and other investment income provided $656 million, or 23% of the university’s operating budget.

“The Duke community has worked hard to address financial challenges that predated, but were amplified by, the pandemic,” Duke University President Vincent Price said in a statement. “This growth in the value of the endowment means we will now have the opportunity to engage more deeply in strategic priorities like student aid and research.”

DUMAC, which manages the endowment’s investment portfolio, also reported three-, five-, and 10-year annualized returns of 18.9%, 16.4%, and 11.6%, respectively.

The huge returns continue a trend of institutional investors reporting record earnings during the past year; however, Washington University and Duke have more than doubled the record returns reported by giants such as Japan’s $1.68 trillion Government Pension Investment Fund (GPIF) and Australia’s Future Fund, which returned 25% and 22.2%, respectively.

Despite the economic damage caused by COVID-19, the portfolios of the world’s largest institutional investors have performed well during the pandemic. The strong markets helped the 300 largest pension funds in the world grow their assets under management (AUM) by 11.5% to reach a collective $21.7 trillion in 2020, according to research from the Thinking Ahead Institute.

World’s Largest 300 Pension Funds’ AUM Surge 11.5% in 2020

Yale Endowment Returns 6.8%, Duke’s Shrinks by $100 Million

Tags: Duke Management, DUMAC, Endowments, Washington University, Washington University Investment Management Company

Dividends and buybacks, those choice shareholder benefits that got shrunk amid the early pandemic market rout in 2020, are about to make a comeback. So says Credit Suisse’s chief US equity strategist, Jonathan Golub.

This return of capital to investors has lagged behind the expansion in earnings, Golub writes in a research note. Profits, of course, fuel share repurchases and dividends.

When the economy closed down in early 2020, he says, earnings dropped 20%. Companies in the S&P 500 responded by slicing payouts even more, by 27%. But since those bad old days, earnings have surged back up, by 32%. Nonetheless, stock repurchases and dividends have increased a paltry 1%, Credit Suisse calculates. “We expect this corporate frugality to reverse over the next one to two years, supporting higher stock prices,” Golub predicts.

In addition, free cash flow (what’s left over after operating expenses and capital expenditures), a broader definition of earnings and the source of capital returns to investors, has risen even faster than profits, according to Golub.

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Financial stocks had the steepest cuts in returned capital of any sector since the pandemic started, the investment firm indicates—off 45%. The Federal Reserve suspended buybacks for US banks in March 2020, but didn’t do the same for dividends. Instead, dividends were capped. In recent months, the Fed has relented on both strictures. The uptake for banks, though, has been limited. Bank of America has kept its dividend at 18 cents a share, and only recently announced a rather small ($25 billion) buyback.

For financials, net income rose 21% as capital returns dropped 45%, mostly due to the suspension of buybacks. Tech companies boosted net income by 25%, but buybacks and dividends slid 6%. For cyclical stocks, including energy, net income plummeted 31% and capital returns descended 41%.

Of course, there’s still an ongoing threat to buybacks. Democrats in Congress are eyeing taxing them more heavily in their search to fund ambitious federal spending plans.