Yale Endowment Gains 0.8%, Duke, Cornell Post Small Losses in 2022

The investment portfolios for Yale University, Duke University, and Cornell University’s endowments managed to perform relatively well for fiscal year 2022, despite global markets being roiled by rampant inflation, rising interest rates, supply chain issues, and war.

Yale’s investment portfolio managed to eek out a 0.8% return, net of fees, for the year ending June 30, which translated to a $266 million investment gain. However, after spending $1.6 billion in distributions to the university’s operating budget, the endowment’s asset value decreased to $41.4 billion from $42.3 billion a year earlier.

“In such a volatile year for the world’s financial markets, we are pleased to have protected Yale’s capital,” Matt Mendelsohn, Yale’s chief investment officer, said in a statement. “That said, we expect challenging times ahead as rising interest rates, inflation, and the geopolitical environment provide stiff headwinds.”

Over the 10 years ending June 30, Yale’s endowment returned 12.0% per year, which the university said outperformed the mean 10-year return for college and university endowments by an estimated 3.4% annually. It also said its portfolio returned 11.3% over the 20 years ending June 30 and surpassed the mean return for that time period for college and university endowments by an estimated 3.5% a year.

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Meanwhile, Duke’s endowment reported an investment loss of 1.5% for the year ending June 30, compared with a 55.9% return last year, and a real rate of return target of at least 5.0% net of fees. The loss lowered the portfolio’s asset value to $12.1 billion from $12.7 billion at the end of fiscal year 2021.

Duke endowment’s benchmark is a composite comprised 70% of the MSCI All Country World Index, which represents the broad global equity market, and 30% of the Bloomberg Barclays Aggregate Index, which represents the domestic bond market. DUMAC, Inc., formerly Duke Management Company, said the MSCI All Country World Index and the Bloomberg Barclays Aggregate Bond Index lost 15.8% and 10.3%, respectively, for the fiscal year ended June 30.

And Cornell’s endowment reported an investment loss of 1.3% for the year ended June 30, which was well off last year’s 41.9% return, but easily beating its strategic benchmark’s 5.1% loss. The endowment’s asset value closed the fiscal year worth $9.8 billion, according to Cornell’s Office of University Investments.

“We ended the year with a very respectable return relative to the environment,” Cornell CIO Kenneth Miranda said in a statement. “We position the portfolio for the long term to weather positive and negative years. Fundamental to our investment philosophy is an understanding that over our near-infinite time horizon, the endowment will confront all manner of expected and unexpected market conditions.”

Penn, Cornell Lag Behind Other Ivy League Endowments

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

Tags: Cornell University, Duke University, DUMAC, Endowments, fiscal year 2022, investment returns, Matt Mendelsohn, Yale University

Although raised interest rates have yet to cause a recession, the ending of the era of cheap financing with near-zero rates have impacted the hedge fund industry materially. New research by Hedge Fund Research, Inc. finds that new hedge fund launches have hit their lowest level since the fourth quarter of 2008.

The estimated number of new hedge fund launches fell to only 80 in the second quarter of 2022, a significant decline from the estimated 185 launched in the first quarter. This figure represented the lowest launch rate since 56 new funds launched back in the fourth quarter of 2008.

On the news, Kenneth J. Heinz, president of HFR shared, “new launches fell sharply for the quarter despite strong outperformance, as risk-off sentiment drove investor risk aversion, with investors maintaining exposures to established funds through the current volatile market paradigm of unprecedented geopolitical and macroeconomic uncertainty.”

The slump in new hedge fund formations comes after a recent study by Nasdaq’s eVestment found that the hedge fund industry has seen $44.9 billion of net redemptions so far this year. The drop in new funds is cited in the report as a result of global inflation plighting financial markets, causing interest rate hikes and high levels of volatility, which aids existing hedge operations.

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Heinz commented on the health of the sector saying, “as current trends continue to dominate performance through year end, it is likely that institutional investors will continue to expand allocations to both Macro funds and the entire industry with the objective of defensive capital preservation, long US Dollar exposure.”

In the trailing 12 months ending with the second quarter of 2022, an estimated 510 total new hedge funds have launched, and an estimated 501 funds have liquidated, resulting in a net gain 0f nine funds over the past year. The number of hedge fund liquidations increased from the prior quarter, as an estimated 156 funds closed their doors in the second quarter, up from 126 fund liquidations in quarter one.

Despite the high amount of cash redeemed from the industry and the slowdown in new firms, hedge fund fees remained steady in 2022, as the average industry-wide management fee was unchanged from the prior quarter at an estimated 1.36%, while the average incentive fee increased narrowly by 2 basis point to 16.05%.

The estimated average management fee, alike with new hedge fund formations, represents the lowest level since HFR began publishing these estimates in 2008. For funds launched in the second quarter, average management fees declined 11 basis points from the prior quarter to an estimated 1.32%. While the average incentive fees for funds launched in the second quarter was estimated at 17.9%, representing a decline of 8 basis points from the prior quarter though remaining above the overall industry-wide average.