Yale Endowment Outperforms Harvard's Investment Return in Fiscal Year

(October 3, 2011) — Yale University’s endowment — run by David Swensen — earned a 21.9% investment return for the fiscal year ended June 30, beating Harvard University’s 21.4% return. 

The 21.9% return for the university is a major improvement from the endowment’s performance in fiscal year 2010, when the university posted an 8.9% return. As of the fiscal year ended June 30, its value rose to $19.4 billion, making it one of the richest in the world. Despite the positive news, the fund remains below its 2007 peak valuation of $22.9 billion. “While real assets provide protection against inflation, which may prove beneficial in today’s highly uncertain global economy, in weak economic environments real assets tend to produce poor returns,” the university said in a statement last year.

According to the New Haven, Connecticut-based school, foreign stocks and private equity investment drove the gains. While the university’s foreign stock portfolio jumped 40.7%, its private equity portfolio gained 30.3%, the university said. The success of private equity has also been detailed in a recent academic research paper that showed that returns on private equity have surpassed the public market over the long-term. “It’s surprising how good private equity has been,” Steven Kaplan, one of the authors of the academic working paper, told aiCIO late last month. “For every dollar you put into private equity, at the end of the day, you have 20% more than if you left that money in public markets. Over a 5-year to 6-year period, that translates to 3% to 4% more a year in investment return.”

During the last 10 years, the average return for college and university endowments was 6.2%.

“We were very pleased to learn of the endowment’s gain of nearly 22% during the 2010–’11 year,” Provost Peter Salovey said in an email to the university newspaper, the Yale Daily News. “The Investments Office has done exceptionally well over the past 10 and 20 years, despite some very difficult years.”

Yale’s CIO Swensen is largely to credit for the fund’s success, as he is responsible for pioneering the investing style that helped endowments beat market indexes by relying on such hard-to-sell assets as real estate and private equity. A report released by the university endowment last year stated: “Yale is not particularly attracted to fixed income assets, as they have the lowest historical and expected returns of the six asset classes that make up the Endowment. In addition, the government bond market is arguably the most efficiently priced asset class, offering few opportunities to add significant value through active management.”