University of Virginia Endowment Return Misses Benchmark by 10.3 Percentage Points

The University of Virginia Investment Management Co., which manages the university’s $13.6 billion endowment, reported a 2% return for the fiscal year that ended June 30, missing its benchmark’s 12.3% return by more than 1,000 basis points.

“Fiscal year 2023 was challenging for diversified institutional portfolios with significant allocations to private investments,” UVIMCO CEO and CIO Robert Durden wrote in the firm’s annual report, adding that its public equity and long/short equity portfolios underperformed broad markets.

The investment group candidly acknowledged that its developed market managers “were not able to fully capture the strong gains seen in domestic equities.” Durden also reported that private investments “significantly lagged public indices,” with the private equity portfolio declining by 5.3%, as compared with a sharp rise in global public equities.

According to VIMCO, its growth equity, venture capital and resources investments underperformed by “wide margins” the MSCI ACWI, which tracks mid- and large-cap stocks. The firm attributed the underperformance to routine lags in valuation adjustments, as well as the industry exposures of underlying investments. The manager also reported that while its diversifying strategies of fixed income and cash, absolute return and credit collectively outperformed the blended Bloomberg U.S. Treasury Bond Index by 3.4%, it “failed to fully compensate for the one-year underperformance of the long -term pool’s equity investments.”

Despite the lackluster results for the year, the endowment—the fifth-largest public university endowment in North America, according to the National Association of College and University Business Officers—continues to outperform its benchmark over all other time periods. UVIMVCO reported three- and five-year annualized returns of 13.1% and 10.1%, respectively, compared with its benchmark’s returns of 8.0% and 7.0%, respectively, over the same periods.

Over 10- and 20-year periods, the endowment’s portfolio returned 9.8% and 10.0%, respectively, while its benchmark returned 7.4% and 7.5%, respectively.

“While short-term underperformance is challenging for us and our investors,” the VIMCO report explained, “bearing different market, manager, and liquidity risks than the policy benchmark helps us earn exemplary investment results over time.

The long-term investment pool has an asset allocation of 27.0% public equity, 26.3% private equity, 15.1% real assets, 11.4% long/short equity, 9.8% absolute return, 6.3% fixed income, 3.8% credit and 0.3% cash. The vast majority of the portfolio is held in pooled investments and commingled funds, as well as in fixed income and cash, rather than through direct ownership of individual securities.