Yale’s endowment earned a 12.3% investment return (net of all fees) for the year ending June 30, 2018. The endowment value increased from $27.2 billion on June 30, 2017, to $29.4 billion on June 30, 2018.
Spending from the endowment, which is the largest source of revenue for the university and supports faculty salaries, student scholarships, and other expenses, for Yale’s 2019 fiscal year is projected to be $1.4 billion, representing approximately 34% of the university’s net revenues. Endowment distributions to the operating budget have increased at an annualized rate of 8.7% over the past 20 years. Those distributions support, among other priorities, Yale’s commitment to meeting the full financial need of every student enrolled in Yale College.
The university’s longer-term results remain in the top tier of institutional investors. Yale’s endowment returned 7.4% per annum over the 10 years ending June 30, 2018. Relative to the estimated 5.5% average return of college and university endowments, over the past 10 years Yale’s investment performance added $4.5 billion of value in the form of increased spending and enhanced endowment value. During the 10-year period, the endowment grew from $22.9 billion to $29.4 billion.
Yale’s endowment returned 11.8% per annum over the 20 years ending June 30, 2018. Relative to the estimated 6.8% average return of college and university endowments, over the past 20 years Yale’s investment performance added $27.1 billion of value in the form of increased spending and enhanced endowment value. During the 20-year period, the endowment grew from $6.6 billion to $29.4 billion.
Long-term asset class performance
Yale’s 10-year asset class performance remains strong. Domestic equities returned 12.4%, exceeding the benchmark by 2.2% annually. Foreign equities produced returns of 14.0%, outperforming the composite benchmark by 10.6% annually. Absolute return produced an annualized return of 4.8%. Leveraged buyouts returned 10.2%, while venture capital returned 16.0%. Real estate and natural resources contributed annual returns of 2.7% and 1.7%, respectively.
Yale’s 20-year asset class performance remains strong. Domestic equities returned 11.8%, besting the benchmark by 4.9% annually. Foreign equities produced returns of 15.6%, surpassing the composite benchmark by 8.5% annually. Absolute return produced an annualized return of 8.3%. Leveraged buyouts returned 12.1%, while venture capital returned 165.9%. Real estate and natural resources contributed annual returns of 9.0% and 15.2%, respectively.1
Yale continues to maintain a well-diversified, equity-oriented portfolio, with the following asset allocation targets for fiscal year 2019:
|Bonds and cash||6.5%|
Yale targets a minimum allocation of 30% of the endowment to market-insensitive assets (cash, bonds and absolute return). The university further seeks to limit illiquid assets (venture capital, leveraged buyouts, real estate and natural resources) to 50% of the portfolio.
Yale’s spending and investment policies provide substantial levels of cash flow to the operating budget for current scholars, while preserving endowment purchasing power for future generations. Approximately a quarter of spending from the endowment is specified by donors to support professorships and teaching. Nearly a fifth is dedicated to scholarships, fellowships and prizes. A quarter is available for general university purposes. The remaining endowment funds are donor-designated to support specific departments or programs.
1Yale employs time-weighted returns to assess manager performance in marketable equities and absolute return, because the cash flows to and from the asset classes are determined by the university. Returns reported for leveraged buyouts, venture capital, real estate and natural resources are dollar-weighted internal rates of return, because the managers of illiquid asset classes determine when to buy and sell assets.
Yale’s 165.9% venture capital return over the past 20 years is heavily influenced by large distributions during the internet boom. Since such a calculation assumes reinvestment of proceeds from the portfolio during the period at the same rate of return for the rest of the period, it is inappropriate to compound the 165.9% return over the 20-year time horizon. For reference, our venture capital portfolio’s 20-year time- weighted return is 24.6%. The other illiquid asset classes are not subject to similar distortions.