Smaller university endowments outperform Harvard, Yale
Posted
Jul 01 2009, 12:42 PM
by
Kim Peterson
Rating:
Oh, we've heard plenty about the spectacular investing prowess of Harvard University. Well, guess what? Schools with smaller endowments are now outperforming the prestigious university by significant margins.
The biggest college endowments, with their complex investment strategies, aren't doing as well as smaller schools with far simpler approaches, the Wall Street Journal reports.
Endowments with less than $1 billion fared better by choosing fixed-income investments, and not the riskier plays like hedge funds, the Journal says.
"Their superior performance is a sharp reversal from most years, when elite colleges profited from investments like hedge funds, private equity and real estate to finish at the head of the class," the Journal writes. This year, those investment strategies failed because they weren't diverse enough.
The five biggies in college endowments -- Harvard, Yale, Stanford, Princeton and the Massachusetts Institute of Technology -- are facing drops of 25% or more in the year ended June 30. Endowments with less than $100 million were down about 16% in that time.
"People have discovered the weakness of the model, the lack of true diversity," an endowment investment manager told the Journal.
The investment losses are hitting Ivy League schools particularly hard because they are more dependent on investment gains to operate. The average school gets 5% of its operating revenue from its endowment, but Ivy League schools get anywhere from 25% to 45%.
Smaller endowments tend to place money in U.S. and foreign stocks and bonds, and over the last year they were rewarded for that strategy.
Image credit: Joseph Barillari, GNU free documentation license
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