Top US universities’ endowments have faced difficulties in recent years and they continue to face challenges.
Returns for years 2022 and 2023 have been hit hard as valuation corrections emerged in private and public markets. In FY2023, Yale’s endowment recorded a 1.8% annual return, while Harvard’s endowment reached a return of 2.9%, which is significantly below their 10Y average returns of 10-12%.
🔹These disappointing financial outcomes are the reality of a challenging economic environment with high interest rates, and valuation corrections in all markets.
🔹High allocation to private markets will now help a lot in the short-term to increase returns as private market returns typically lag behind the returns of public markets.
Narv Narvekar, CEO of Harvard Management Company (HMC), which manages Harvard University endowment with 39% allocation to private equity, in a 2023 report blamed macro conditions and declined to break down performance by asset class. He thinks that valuation catch-up in private markets combined with slowdown in private equity exits will continue to squeeze returns. Many of Harvard’s peers also cited private markets as a drag on overall returns.
🔹”FY22 private managers did not reduce the value of their investments in a manner consistent with declining public equity markets. Accordingly, those private asset managers did not subsequently increase the value of their investments in the context of rising public equity markets in FY23. Given the continued slowdown in exits and financing rounds over the last year, it will likely take more time for private valuations to fully reflect current market conditions.” – Narv Narvekar.
Source: Pitchbook / #AssetAllocation #alternativeInvestments #PrivateEquity #endowment / Note: Cornell figures reflect last 5 years.
Leave a Reply