US Endowment Returns Lagged Public Pensions, Again

By more than 100 basis points, higher education funds underperformed public pensions last year, according to NACUBO-Commonfund and Wilshire data.

US university endowments returned an average 15.8% in the fiscal year ending June 30—more than 100 basis point less than the typical public pension fund, two studies have shown.

Public pensions rode their large equities allocations (averaging 61%) to 16.86% gains, Wilshire Associates reported in August. Funds larger than $1 billion did even better, returning 17.44% for the fiscal year.

Endowment portfolios, in contrast, held an average 30% of the best-in-class performing asset, according to preliminary data from the annual NACUBO-Commonfund study. For the 129 institutions evaluated, domestic equities generated 22.6% returns while international stocks gained 19.6%.

“Smaller endowments, which typically have the largest allocations to traditional asset classes, benefited from the strong performance of liquid domestic and international equities beginning in 2009,” said Commonfund Institute Executive Director John Griswold. 

 Yale’s endowment earned 20.2% in FY2014, Princeton 19.6%, MIT 19.2%, and Columbia gained 17.5%. Harvard’s endowment returned 15.4%.

“But,” he added, “the greater diversification practiced by the largest endowments and their emphasis on a variety of sources of return, both public and private, tends to result in higher long-term investment performance.”

In aggregate, public and private schools dedicated roughly the same portion of their assets (58%) to alternatives as public pensions did to equities (61%). However, the unlisted investments generally trailed a roaring stock market, gaining 12.8% net-of-fees for the year. 

Unlike the narrow spread between US and foreign equities, performance varied widely within alternatives buckets’ various strategies. Venture capital scored an unmatched 21.2% return, followed by 18.4% gains for energy and natural resources investments. Private equity’s 17% average returns vastly outpaced hedge funds’ 9%. Commodities and managed futures brought up the rear at 9%.

NACUBO_1Source: 2014 NACUBO-Commonfund Study of Endowments  

A number of the nation’s most high profile, elite universities have, in recent weeks, revealed FY2014 performances far in excess of the average large endowment’s 16.8% gain.

Yale University earned 20.2%, Princeton 19.6%, MIT 19.2%, and Columbia returned 17.5% on its $9.2 billion portfolio.

But the largest, most-watched endowment of all once again failed to enter the winner’s circle. Harvard University disclosed its sub-par 15.4% returns for FY2014 just hours before announcing the replacement for outgoing CEO Jane Mendillo. Managing Director and Head of Public Markets Stephen Blyth is set take over the $36.4 billion fund on January 1, 2015. 

Shortly after Blyth moves into the top job, the final 2014 NACUBO-Commonfund study of more than 800 endowments is scheduled for release.

Related Content: US Endowments Beaten by Public Pensions in FY2013; Endowments Dump Alternatives for Equities