Markov Processes International

UPenn’s FY 2022 Zero Return: A Balancing Act

The University of Pennsylvania endowment kicked off the Ivy reporting season last year with a 41.1% return for FY2021, driven by strong returns in private equity and venture capital. Similar investments led other endowments to historic returns last year as well, albeit, with some variation in results.

This year, UPenn was again the first Ivy to post fiscal year results, but what a difference a year makes. UPenn has reported a 0% return for FY2022, and early indications are that their continued focus on private equity, natural resources, and real estate saved them from the negative returns that are already being reported by other endowments. (For example, Dartmouth at -3.1% for FY2022).

This won’t surprise followers of our research; we published endowment return forecasts in August of this year projecting average Ivy loss at -2.9% and predicted that “only endowments overweighted in real assets” would come out ahead in FY2022 results.

So, what drove UPenn to such a perfectly balanced result? The endowment is silent on the sources of this year’s returns, so we’ll turn to the method used by our clients to understand what worked and what didn’t – especially if positions are hard to net (or impossible to get). Using our MPI Stylus Pro platform and the endowment’s annual public returns as inputs, we were able to produce an asset-based dynamic replication portfolio that does a great job of mirroring UPenn’s behavior.  In the chart below, we see the continuation of last year’s trend: an expanding exposure to private assets at the expense of hedge funds and public equity.

The above chart can be viewed as a proxy of the endowment’s asset allocation, when all the individual contributions from dozens of managers are netted and cancel out. With that in mind, our asset class performance contribution estimates for UPenn can be seen below and reflect the return drivers noted above. Unsurprisingly, UPenn got little help from equities this year, with equity hedge funds providing a particularly painful drawdown – quite a reversal from the last fiscal year when hedge funds were the #2 performance contributor.

What’s fascinating is that this fiscal year’s estimated contributions of private assets (private equity, real estate and natural resources) of approximately 5% are perfectly balanced with estimated losses in public assets (equities and hedge funds), with the result arriving at a 0% return. We estimate that hedge funds were the biggest drag on performance with -2.84%, while private equity had the biggest positive contribution of 2.67% as shown in more detail below.


UPenn came in at zero, and we expect most endowments’ balancing acts will be more or less the same… Positive contributions from privates, and negative contributions from public. We’ll continue bringing you early views and insights as the endowment season plays out. Stay tuned!

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