A deeper look inside the investment returns of some of the most prestigious endowments in the world.

We sought to examine the relationships between endowment size, pedigree and exposure to private assets and what impact that may have on portfolio risk using advanced quantitative methods and a cutting edge methodology to better model the true behavior and risk profile of private market assets.

The endowment model, and active management in general, has come under increased scrutiny, while indexed, or passive, products have grown in popularity and number. Regardless of where you stand on that debate, it’s hard to deny that the Ivies approach to asset allocation has been very good.

Similar to 2017 performance, this past fiscal year was a strong one for most Ivy League endowments. Fiscal year 2018 is noteworthy, however, for being the first year that long horizon (10-year) returns from all Ivy endowments lagged behind the 60-40 portfolio.

Returns across the Ivy League are largely seen as being driven by exposure to private equity and venture capital.

At the midway point of fiscal year reporting for the Ivy League endowments, our research team analyzes what we know so far to identify the key drivers of returns.

2017 Yale endowment report rebuts Warren Buffett’s 2016 Berkshire Hathaway investor letter that “financial ‘elites’”, including endowments, are better off investing in low fee index products and not “wasting” money on active managers’ hefty fees. We did our own calculations and here’s what we found…

It is generally known that endowments invest in risky assets, but quantifying such risks has remained challenging due to a lack of information about returns. We set out to address this challenge and developed a new basis for estimating endowment risks.

In stark contrast to FY 2016, this past year was a strong one for most endowments. In fact, nearly all the Ivy League endowments, Harvard being the only exception, beat the 60-40 portfolio, a commonly cited benchmark that endowments measure their performance against.

The returns of endowments can be attributed to two fundamental components: asset allocation and security selection. Asset allocation is what a factor model is generally able to explain, shown in terms of factor exposures.

We look at the largest endowments and find striking similarities in their asset class exposures. At the same time, some endowments stand out both in terms of allocations and FY2016 performance.