The investment portfolio for Penn State University’s endowment returned 7.8% for fiscal year 2018, missing its benchmark of 9.0%, and falling below the 8.3% median return of universities as measured by Cambridge Associates. Last year, the endowment returned 12.6%.
The performance is among the lowest reported by other major public universities so far this year. For example, University of Virginia, University of Texas, Michigan State, and University of California reported returns of 11.4%, 11.27%, 11.1%, and 8.9% this year, respectively.
The endowment’s assets increased during the year to $2.85 billion from $2.62 billion, and had three-, five-, 10-year, and 20-year annualized returns of 6.4%, 7.9%, 6.6%, and 7.0% respectively. And over the past five years (2014-2018), the total endowment increased $830.5 million, or 24.8%.
According to Penn State’s investment office, the university’s long-term portfolio had 50% of its assets invested in domestic and foreign public equities, 20% in private equity and venture capital, 12% in fixed income/short-term investments, 10% in diversifying (hedged) strategies, and 8% in real assets.
The investment office said the endowment is prepared for a potential financial crisis by being able to provide liquidity on short notice. It said that 40% of the portfolio’s assets are invested in stocks and bonds that can be converted to cash in a matter of days. Of this, 5% is held in money market accounts and short-term fixed income investments as of the end of June.
However, 25% percent of the assets are invested in more than 120 different partnerships funds or other non-marketable investments that are considered illiquid because the underlying holdings are not readily marketable, or the timing of future realizations into cash distributions is uncertain.