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Ivy league endowments suffer from soft returns

Students walk on the campus of Harvard University in Cambridge, Mass., in February 2008.

DINA RUDICK/DINA RUDICK/THE BOSTON GLOBE

The big U.S. endowment funds, supposedly run by super smart managers, struggled to generate solid returns last year.

During fiscal 2012, which ended June 30, Harvard's $31-billion endowment return was basically flat, losing 0.05 per cent, while University of Pennsylvania's $6.8-billion endowment returned just 1.6 per cent. Yale University's was a little more promising at 4.7 per cent, and Massachusetts Institute of Technology's was actually encouraging at 8 per cent, but overall there was a big drop from previous years. In 2011, Harvard returned 21 per cent and many universities target annual returns of 8 to 9 per cent.

The sub par returns have been replicated at places like hedge funds, of late. Last week, CNN Money noted that every hedge fund category tracked by Morningstar lagged the major stock indices from January to August in 2012.

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Because endowment returns were sub par last year, Moody's Investor Service estimates that most endowment totals "likely declined by 1 to 5 per cent in fiscal 2012, net of new gifts, owing to weak investment performance and 4 to 6 per cent endowment spending for the annual budget."

However, "most endowments are coming off of two strong years of returns in fiscal 2010 and 2011 and have regained much of the value that was lost during 2008-09," noted vice-president Kim Tuby.

The reasons for each university's lacklustre performance differs from school to school, but in Harvard's case, the money managers got burned in emerging markets. Stocks from these regions held in Harvard's portfolio lost 17 per cent last year.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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