Fitch: Many Endowments Following Harvard to a Weak 2012

After two years of strong gains throughout the university endowment space, 2012 is looking rather more tepid, says Fitch Ratings.

(October 11, 2012) – Harvard University’s $30.7 billion endowment will not be the only endowment posting lackluster returns for the 2012 fiscal year, according to Fitch Ratings. 

“It’s still early, but the positive trends that we were noting for 2010 and 2011 are likely to subside for 2012,” Angela Guerrero, an assistant director at Fitch, told aiCIO. “Endowments smooth their returns over three years, and so the serious losses from 2008 and 2009 had almost cycled out. Based on the results that have come in so far, there is generally a slowdown in the positive trend we were seeing.” 

The world’s largest university endowment lost 0.05% on its investments this year—taking a serious hit on its global equities portfolio—after gaining 21.4% last year and 11% in 2010. 

But not every Ivy or major endowment is flat lining. 

Yale University returned 4.7%, and the Massachusetts Institute of Technology (MIT) gained 8%. “There is a lot of diversity in the endowment space,” Guerrero points out. “Asset allocation varies greatly by school. Harvard and MIT have more sophisticated asset-managing corporations, which subject you to higher highs and lower lows. Those with exposure to the equity market in 3rd quarter of 2012 suffered for it.” 

While MIT may have escaped the volatile global stock market, Guerrero says much of the university landscape may have equity exposure that follows closer to Harvard—which is not the ideal role model this fiscal year. 

“For the most part, across smaller institutions which have fewer resources and often more banal asset allocation, it’s a 70%-30% fixed income-to-equities split. Private universities of course depend on their endowments more than public ones, which have more diverse funding streams.” 

The university endowment space as a whole needs another good year to recover from the financial crisis, she says, and “if 2012 comes in flat, it’ll just really keep endowments from bouncing back, it will stunt them a little bit.”