The strongest university endowment returns so far this year are from Yale University and managers who once worked there.
The one thing tying the best-performing institutions together: David Swensen, the longtime investment chief at Yale. He pioneered a model that favors a longer investment horizon and committing capital to illiquid investments such as hedge funds and private equity that often provide higher returns.
“Yale has a global approach and they have great managers and there are times when they perform unusually well,” said Jonathan Hirtle, chief executive officer of Hirtle Callaghan & Co., which is based near Philadelphia and manages more than $25 billion for wealthy families and institutions such as colleges.
Princeton University’s Andrew Golden, Massachusetts Institute of Technology’s Seth Alexander and Bowdoin College’s Paula Volent all worked in Yale’s investments office before leaving to run other endowments. Swensen didn’t respond for a request for comment on the returns.
Bowdoin posted the highest return so far this year at 14.4 percent. MIT’s fund gained 13.2 percent while Princeton was up 12.7 percent. Yale’s return was 11.5 percent. All returns are for the year ended June 30 and were well above an industry benchmark of 3.6 percent.
Network Expands
The strong showings this year boost the already high value attached to veterans of the Ivy League school’s investment office, executive recruiters said. That network has grown in the past two years as Stanford University and the University of Pennsylvania hired endowment chiefs who once worked under Swensen as they seek to boost performance.
“They’re not only really talented people, they have a badge of honor,” said Debra Brown of New York-based Russell Reynolds Associates, which helped hire Peter Ammon for the University of Pennsylvania. “They’re viewed to be very well trained.”
The success of the Yale investment strategy led to a transformation of almost every large college portfolio over the past two decades, from a simple mix of stocks and bonds to heavy weightings of alternative investments.
The endowment model came under scrutiny when schools including Yale and Harvard posted losses of more than 20 percent for the year ended June 2009. In the years after, wealthier schools often struggled to stand out from institutions with smaller, less sophisticated endowments as publicly-traded domestic stocks rebounded, often beating alternative investments.