Endowment funds are up over 50% this year

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Elysium
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Endowment funds are up over 50% this year

Post by Elysium »

According to folks who have received the reports, big university endowments are up over 50% this year (some of the usual named ivy's). What could be the reason? tapping into private equity that are small value like (sv is up 30% so perhaps tapping into select private equity of that nature), or new innovation investments (kathy wood type of opportunities). Anyone has further insights. Not that it matters to BH, however interesting to lean how endowments make such big gains in a year like this.
Silk McCue
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Re: Endowment funds are up over 50% this year

Post by Silk McCue »

The US market overall was up significantly between July 1 2020 and June 30 2021 after bottoming out in mid to late March 2020 due to Covid. It appears the S&P500 was up 38% for those 12 months which is reported here.

Three "columns" in the table below are "University", "Value (billions)" and "Gain".
Soaring Returns
U.S. university endowments are posting their best returns in decades, thanks to the soaring stock market and stellar results in venture capital and private equity. Results are for fiscal year 2021 through June 30.

University Value (bil) Gain
Washington University in St. Louis $15.30 65
Bowdoin College 2.7 57.4
Vanderbilt University 10.9 57.1
Duke University 12.7 55.9
Massachusetts Institute of Technology 27.4 55.5
Brown University 6.9 51.5
Northwestern University 15 42.2
Cornell University 10 41.9
University of Pennsylvania 20.5 41
Harvard University 53.2 33.6
https://www.barrons.com/articles/ventur ... 1634231107

Cheers
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Robert T
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Re: Endowment funds are up over 50% this year

Post by Robert T »

.
Reporting time period: Jul 2020 - Jun 2021.

And if private equity returns are similar to small value (as per Rick's podcast with Ted Aronson), over this period:

VBR = 65.6%
AVUV = 90.4%
RZV = 102.7%
https://www.portfoliovisualizer.com/bac ... ion3_3=100
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randomguy
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Re: Endowment funds are up over 50% this year

Post by randomguy »

Clearly active investing and paying professionals is far superior to indexing. :) To some extent when you are only looking at the top 10 out of 100s, you will get some big winners. Maybe the guy at Washington U. played the GameStop saga properly. Maybe the private equity group had a couple of their companies explode. And so on.
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Re: Endowment funds are up over 50% this year

Post by FiveFactor »

I’m up (edit) 38.8%. Endowments go more into PE to 1) avoid mark to market, 2) capture liquidity risk premium. And many PEs are skewed to value.

Edit: bogleheads need to be worried about the freight train headed their way… https://twitter.com/callum_thomas/statu ... 27937?s=21
Last edited by FiveFactor on Sat Oct 16, 2021 7:24 pm, edited 1 time in total.
Small/Value/Profitability: | 30% AVUV | 30% AVDV | 30% AVES | Momentum: | 5% QMOM | 5% IMOM | Volatility: | 0.1% PUTW | Term: | 0.1% BND
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Re: Endowment funds are up over 50% this year

Post by mikejuss »

This is not particularly impressive during a time when the rate of return on a dumb 3-fund index portfolio is around 25%.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
FiveFactor
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Re: Endowment funds are up over 50% this year

Post by FiveFactor »

mikejuss wrote: Sat Oct 16, 2021 10:55 am This is not particularly impressive during a time when the rate of return on a dumb 3-fund index portfolio is around 25%.


Really? sounds like sour grapes to me.
Small/Value/Profitability: | 30% AVUV | 30% AVDV | 30% AVES | Momentum: | 5% QMOM | 5% IMOM | Volatility: | 0.1% PUTW | Term: | 0.1% BND
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Re: Endowment funds are up over 50% this year

Post by FiveFactor »

randomguy wrote: Sat Oct 16, 2021 10:46 am Clearly active investing and paying professionals is far superior to indexing. :) To some extent when you are only looking at the top 10 out of 100s, you will get some big winners. Maybe the guy at Washington U. played the GameStop saga properly. Maybe the private equity group had a couple of their companies explode. And so on.
Or endowments follow the science of investing, tilt factors, and have profited. One of those is true.
Small/Value/Profitability: | 30% AVUV | 30% AVDV | 30% AVES | Momentum: | 5% QMOM | 5% IMOM | Volatility: | 0.1% PUTW | Term: | 0.1% BND
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Re: Endowment funds are up over 50% this year

Post by mikejuss »

FiveFactor wrote: Sat Oct 16, 2021 10:56 am
mikejuss wrote: Sat Oct 16, 2021 10:55 am This is not particularly impressive during a time when the rate of return on a dumb 3-fund index portfolio is around 25%.


Really? sounds like sour grapes to me.
Oh--I'm delighted with my rate of return!
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Cheez-It Guy
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Re: Endowment funds are up over 50% this year

Post by Cheez-It Guy »

Endowments also receive ongoing contributions, do they not?
FiveFactor
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Re: Endowment funds are up over 50% this year

Post by FiveFactor »

mikejuss wrote: Sat Oct 16, 2021 10:59 am
FiveFactor wrote: Sat Oct 16, 2021 10:56 am
mikejuss wrote: Sat Oct 16, 2021 10:55 am This is not particularly impressive during a time when the rate of return on a dumb 3-fund index portfolio is around 25%.


Really? sounds like sour grapes to me.
Oh--I'm delighted with my rate of return!
Me too. 46% is good. And it terminates at the largest value growth spread in history. Yes please. Moar!!
Small/Value/Profitability: | 30% AVUV | 30% AVDV | 30% AVES | Momentum: | 5% QMOM | 5% IMOM | Volatility: | 0.1% PUTW | Term: | 0.1% BND
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Re: Endowment funds are up over 50% this year

Post by mikejuss »

FiveFactor wrote: Sat Oct 16, 2021 11:05 am
mikejuss wrote: Sat Oct 16, 2021 10:59 am
FiveFactor wrote: Sat Oct 16, 2021 10:56 am
mikejuss wrote: Sat Oct 16, 2021 10:55 am This is not particularly impressive during a time when the rate of return on a dumb 3-fund index portfolio is around 25%.


Really? sounds like sour grapes to me.
Oh--I'm delighted with my rate of return!
Me too. 46% is good. And it terminates at the largest value growth spread in history. Yes please. Moar!!
You enjoy your actively managed funds, sir. And no whining during the next recession. :wink:
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
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Re: Endowment funds are up over 50% this year

Post by LadyGeek »

I removed a contentious interchange. As a reminder, see: General Etiquette
At all times we must conduct ourselves in a respectful manner to other posters. Attacks on individuals, insults, name calling, trolling, baiting or other attempts to sow dissension are not acceptable.
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Re: Endowment funds are up over 50% this year

Post by randomguy »

FiveFactor wrote: Sat Oct 16, 2021 10:57 am
randomguy wrote: Sat Oct 16, 2021 10:46 am Clearly active investing and paying professionals is far superior to indexing. :) To some extent when you are only looking at the top 10 out of 100s, you will get some big winners. Maybe the guy at Washington U. played the GameStop saga properly. Maybe the private equity group had a couple of their companies explode. And so on.
Or endowments follow the science of investing, tilt factors, and have profited. One of those is true.
Actually it is more likely both are true. Yes the endowments aren't just flipping coins but investment science is far from exact and this is the list of the people whose gambles paid off. Why did the #1 school have 2x the performance of the 10th? How was the 100th? They were all using the same info on the science of investing but came to different conclusions on where to invest.

With any active scheme there will be big winners. The person who bought Breakwave Dry Bulk Shipping (up 360%) or United States Natural Gas Fund LP (120%) crushed these returns over the past year. But out of the universe of ETFs, what were you odds of picking those? This year the investments favored by these endowments did well. In another 2 years they will have a bad year and we will get all the threads saying they should just invest 60/40 and they would have more money.
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Re: Endowment funds are up over 50% this year

Post by garlandwhizzer »

I believe a single cherry-picked 12 month period and showing a list of its cherry-picked winners is not sufficient evidence to conclude that endowment investing approaches using private equity, hedge funds, alternate strategies, etc., is a superior investment strategy that individual investors should embrace. As Robert T points out, that 12 month period was an outstanding one for SCV funds that are liquid, cheap, and easily accessible to individual investors.

In contrast, University endowment strategies are typically illiquid and have high cost structure. Due to their massive asset bases they are offered access to investment options that individual investors will never see. Even given these advantages over a longer period of time frame like 20 years (2000 - 2020) the Harvard Endowment underperformed the S&P 500 significantly. In fact for it underperformed very year for 12 years consecutive years. The long term record of endowment funds since 2000 is underwhelming.

https://www.marketwatch.com/story/what- ... 2020-10-09

Endowment managers saw and opportunity and made big bets during this one year span. Unlike many of their bets, this one hit it big. That proves nothing. Some bets win, others lose, it's very much like a coin flip short term. Early in this period the valuation differential between growth stocks and value stocks touched an all time high. There are no certainties in markets that always work. The closest thing to one is that whenever anything is at or very close to an all time high (LCG in late summer 2020) while another is at an all time low (SCV), it is a good time to consider moving some money from the long term winner to the long term loser. Sentiment reached extreme levels of optimism for growth and extreme levels of pessimism for value at that time. The endowments realized that and positioned accordingly probably with leverage. I made a modest non-leveraged move like that myself. We made bets and they paid off. We were lucky, but make no mistake, the next bet may be a big loser. No one makes risky market bets that are consistently accurate over a long period of time. There are no exceptions to that rule. For some reason investors seem to desperately want to believe that someone somewhere consistently knows the market future before it happens. It is true that some make better bets than others on average, but the market hands all of them large slices of humble pie from time to time, just like it hands the rest of us. When a simple S&P 500 index fund outperforms the Harvard Endowment for 20 years running that should tell you something.

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Re: Endowment funds are up over 50% this year

Post by 000 »

FiveFactor wrote: Sat Oct 16, 2021 10:52 am I’m up 46%. Endowments go more into PE to 1) avoid mark to market, 2) capture liquidity risk premium. And many PEs are skewed to value.

Edit: bogleheads need to be worried about the freight train headed their way… https://twitter.com/callum_thomas/statu ... 27937?s=21
Good chart but based on the 80s maybe there's room yet to run?
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Re: Endowment funds are up over 50% this year

Post by 000 »

Elysium wrote: Sat Oct 16, 2021 6:48 am Anyone has further insights.
Seems within the realm of possibility that some of these organizations may be sufficiently well connected to have inside insights.
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Re: Endowment funds are up over 50% this year

Post by FiveFactor »

000 wrote: Sat Oct 16, 2021 7:02 pm
FiveFactor wrote: Sat Oct 16, 2021 10:52 am I’m up 46%. Endowments go more into PE to 1) avoid mark to market, 2) capture liquidity risk premium. And many PEs are skewed to value.

Edit: bogleheads need to be worried about the freight train headed their way… https://twitter.com/callum_thomas/statu ... 27937?s=21
Good chart but based on the 80s maybe there's room yet to run?
Who knows? Long run probabilities and expected returns is the game I play. Not trying to call a peak.

Edit. I will say that international valuations now are what US valuations were at the bottom of the Covid crash. That’s on a sector neutral basis. Stack RTM across: international, value, small, profitability…. I hope it’s potent AF
Small/Value/Profitability: | 30% AVUV | 30% AVDV | 30% AVES | Momentum: | 5% QMOM | 5% IMOM | Volatility: | 0.1% PUTW | Term: | 0.1% BND
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Re: Endowment funds are up over 50% this year

Post by 000 »

FiveFactor wrote: Sat Oct 16, 2021 7:04 pm Who knows? Long run probabilities and expected returns is the game I play. Not trying to call a peak.

Edit. I will say that international valuations now are what US valuations were at the bottom of the Covid crash. That’s on a sector neutral basis. Stack RTM across: international, value, small, profitability…. I hope it’s potent AF
Fair enough. I agree with you.
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Re: Endowment funds are up over 50% this year

Post by randomguy »

garlandwhizzer wrote: Sat Oct 16, 2021 6:25 pm When a simple S&P 500 index fund outperforms the Harvard Endowment for 20 years running that should tell you something.

Garland Whizzer
It tells me nothing since I don't know how much risk Harvard took on compared to the S&P 500 during these years. If they were investing with the volatility of a 50/50 portfolio, I would expect them to have a much lower return. Or maybe they are just cyclical investors and they will have 20 good years (early 80s to ealy 2000), 15 bad years (mid 00s to 2020), and 20 good years afterwards and end up with results much better than the S&P 500. I wouldn't pretend to know.

There will always be some hot trend of people that have down well over the past 15 years (or poorly). Very few of them keep on rolling. Even guys like Buffet have had some bad times. The Medallion fund is the exception that proves the rule. :)
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Re: Endowment funds are up over 50% this year

Post by Robert T »

.
Asset allocation and ‘security (manager) selection’ likely contributed to both the relatively high and widely dispersed endowment returns in the Jul 2020 – June 2021 period.

Private equity seemed to perform well. For example, Harvard’s private equity investments returned 77% over this period for their 34% allocation to the asset class. Some others seem to have even higher allocations to private equity.

The challenge with these ‘alternative’ asset classes is that the dispersion of active manager performance is high. Picking ‘losers’ seems equally as likely as ‘picking winners’, and losers can lose by a lot.

For example – from Swensen’s book’s here’s the dispersion (spread) between first and third quartile active manager returns for the 10 years to 2005 (I doubt the pattern has changed much).

Spread between first and third quartile active manager returns / asset class
  • 0.5% = US Fixed Income
    1.9% = US Equity
    4.0% = International Equity
    4.8% = US Small Cal Equity
    7.1% = Absolute Return
    9.2% = Real Estate
    13.7% = Leveraged Buyouts
    43.2% = Venture Capital
But giving credit where its due, Yale has used ‘alternative’ asset classes to good effect.

20-year annualized return (%) / SD - to June 2021

11.3 / 13.0 = Yale endowment
8.5 / 15.9 = S&P500

Over this period the Yale endowment had about an average fixed income/cash allocation of 6.5% (heavy equity orientation), and was diversified across multiple asset classes that led to more even 10-year annualized return periods. For example, in the first 10 years (10 year to June 2011) of this 20-year period, annualized return of the Yale endowment = 10.2% vs. 2.6% for the S&P500, and 12.4% for the subsequent 10-year block to June 2020 vs. 14.7% for the S&P500. Many people point to the last 10 years as their evidence base to say Yale’s model is broken as it can’t even keep up with the S&P500. But I would disagree with the 'broken' notion, at least in the case of Yale, as it has provided more even returns over time – an annualized return difference of 2.3% between these two 10-year blocks, vs. the 12.3% return difference for the S&P500.

And I think Swensen’s basic principles of equity orientation, diversification, and low cost apply to individual investors as detailed in his book Unconventional Success.

Over the same time period the equity portfolio of the portfolio in that book had an annualized return and standard deviation of:

9.1 / 16.2 = Swenson “Unconventional Success” Equity
8.5 / 12.7 = 80:20 Swensen “Unconventional Success” Equity:Fixed Income

It also had more even returns across the 10-year block periods than the S&P500. Investors could do a lot worse than simply follow the guidance provided by Swensen in that book.

Obviously no guarantees.

Robert
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Re: Endowment funds are up over 50% this year

Post by illumination »

Considering most private equity uses leverage, how much better would performance be if leverage was used on the sort of "pedestrian" funds that are championed here?

The long term performance I've seen over they years shows most endowments (including the prestigious Ivy League ones) have not done all that well. The outlier since forever was Yale, which has access to the cream of the crop in terms of deals, not the "leftovers" that are available to retail investors. Around 40% of Yale's endowment is private equity.

But even there, Yale has lost for several years to the S&P500
https://www.morningstar.com/articles/93 ... wment-fund

Here's a study on the endowment returns for Universities from NACUBO

Image

https://www.nacubo.org/Research/2020/Public-NTSE-Tables
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Re: Endowment funds are up over 50% this year

Post by Dave55 »

Endowment's also use Hedge Funds.

Dave
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Re: Endowment funds are up over 50% this year

Post by adamthesmythe »

I guess this means I should donate my $ to a university so they can invest it for me.
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Re: Endowment funds are up over 50% this year

Post by Maverick3320 »

FiveFactor wrote: Sat Oct 16, 2021 10:56 am
mikejuss wrote: Sat Oct 16, 2021 10:55 am This is not particularly impressive during a time when the rate of return on a dumb 3-fund index portfolio is around 25%.


Really? sounds like sour grapes to me.
Sour grapes? Wouldn't it make more sense to look at ALL the college endowment funds, not just ten of the best?
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Re: Endowment funds are up over 50% this year

Post by vanbogle59 »

randomguy wrote: Sat Oct 16, 2021 5:57 pm
FiveFactor wrote: Sat Oct 16, 2021 10:57 am
randomguy wrote: Sat Oct 16, 2021 10:46 am Clearly active investing and paying professionals is far superior to indexing. :) To some extent when you are only looking at the top 10 out of 100s, you will get some big winners. Maybe the guy at Washington U. played the GameStop saga properly. Maybe the private equity group had a couple of their companies explode. And so on.
Or endowments follow the science of investing, tilt factors, and have profited. One of those is true.
Actually it is more likely both are true. Yes the endowments aren't just flipping coins but investment science is far from exact and this is the list of the people whose gambles paid off. Why did the #1 school have 2x the performance of the 10th? How was the 100th? They were all using the same info on the science of investing but came to different conclusions on where to invest.

With any active scheme there will be big winners. The person who bought Breakwave Dry Bulk Shipping (up 360%) or United States Natural Gas Fund LP (120%) crushed these returns over the past year. But out of the universe of ETFs, what were you odds of picking those? This year the investments favored by these endowments did well. In another 2 years they will have a bad year and we will get all the threads saying they should just invest 60/40 and they would have more money.
+1
And....
Even if #100 beats the 3 fund portfolio, in up and down markets, is he really giving away his methodology for free on Twitter? Or even in Barrons?
How would I know how to mirror his moves?
How much would he charge me to manage my money?

P.S. aren't all these endowment funds tax free?
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