Ivy League Endowments Lag 60-40 Portfolio

None of the elite universities’ endowments beat a 60-40 portfolio over the past decade.

Despite reporting strong returns for the second straight year, Ivy League university endowments have lagged behind a simple portfolio comprised of 60% stocks and 40% bonds over the past 10 years, according to a report from Markov Processes International.

“The Ivies continued the strong results of FY 2017, with all but Columbia registering double-digit returns in FY 2018, and all beating a 60-40 portfolio,” Markov Processes said in a release. However, it added, “it is the first time in the 20 years of available Ivy endowment returns data that a 60-40 portfolio outpaces all Ivies in terms of 10-year performance.”

The report said that from fiscal year 2009 to 2018, a portfolio made up of 60% stocks and 40% fixed income had annualized returns of 8.1%. Meanwhile not even the top-performing Ivy League endowments beat this over the same time period as Columbia University and Princeton University’s endowments were a shade behind with annualized returns of 8.0% each.

They were followed by the University of Pennsylvania, Yale University, and Dartmouth University, which had annualized returns of 7.7%, 7.4%, and 7.3%, respectively, during the same time period. And the worst-performing Ivy League endowments from 2009 to 2018 were Harvard University, Cornell University, and Brown University, with annualized returns of 4.5% 4.8%, and 5.9% respectively.

As of July, the combined assets under management of the Ivy League endowments was $135.7 billion, according to Markov Processes, which is an increase of $11.5 billion from fiscal year 2017. The report said that assets among all endowments nationwide rose 68% between 2009 and 2017, and during that time, the portion that was overseen by Ivy League endowments has declined to 22.1% from 23.7%.

The firm said that endowment performance should be evaluated in three ways. The first is by examining if the endowments preserve value and purchasing power after spending. Because the target payouts of Ivy League endowments are around 5%, and inflation has been around 2.8% over the past 10 years, this means they have had to beat a combined return of around 7.8% to cover expenses.

The second way, said the report, is to compare the performance against broad measures of equity and debt markets. This can highlight whether investments made by the endowments in the private markets achieve better returns than the public ones. And the third way to evaluate performance is to see whether endowments keep pace with peers that have similar mandates.

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