Massachusetts Institute of Technology reported weak investment returns, as its holdings in venture capital suffered apparent losses.
MIT’s endowment declined 2.9% to $23.5 billion in the fiscal year ended June 30. MIT is one of the first big university endowments to report its results. Harvard University, which has the largest fund among U.S. universities, is expected to report results soon.
MIT’s results, reported Friday, show the downside of a focus on alternative investments—venture capital, hedge funds, private equity and real estate—that have become the rage among big college and university endowments.
They have followed the so-called Yale model championed by the late David Swensen, the former Yale endowment chief who died in 2021. Yale has had less than 5% of its endowment in listed domestic equities.
Duke University, which also is heavy in alternatives, recently reported a 1% decline in the value of its $11.6 billion endowment in the year ended in June.
While alternatives struggled in the fiscal year, listed stocks shined as the S&P 500 index returned 19.6%, while bonds, as measured by the
iShares Core U.S. Aggregate Bond
(tIcker: AGG) exchange-traded fund was down 1% in the year ended in June. A 70/30 mix of the S&P 500 and the bond ETF returned 13.4%, Barron’s estimates.
The Wilshire Trust Universe Comparison Service, which broadly tracks institutional portfolios, showed an 8.1% return in the year ended in June.
MIT made scant comments about its investment returns, saying in a report from its treasurer that a “retrenchment” in the value of its venture capital portfolio contributed to the fiscal 2023 decline.
The lackluster returns followed a huge gain in the year ended June 2021, when MIT’s endowment returned 55.5% on the back of big gains in venture capital. The endowment lost 5.3% in the year ended June 2022.
Endowment portfolios look nothing like those of individual investors and the 60/40 or 70/30 mix of stocks and bonds favored by many financial advisors.
Based on the MIT Treasurer’s report, it’s not possible to come up with a precise asset allocation but it’s notable that private equity investments (which presumably include venture capital) totaled $10.5 billion on June 30, while domestic equity investments totaled about $2 billion.
Big endowments often have less than 20% of their holdings in U.S. stocks, taking the view that less-liquid asset classes like venture capital, private equity, hedge funds and real estate offer the potential for higher risk-adjusted returns.
The MIT endowment is up about 43% in the past three years, Barron’s estimates, behind the S&P 500, which is 50% but comfortably ahead of a 70/30 mix of stocks and bonds which has returned about 32%, we estimate.
The issue for MIT and other endowments is whether the markdowns on venture capital and other alternatives are over. MIT, like others, also has significant unfunded commitments to private equity, which in the case of MIT totaled about $3 billion on June 30.
MIT couldn’t be reached for comment with its press office closed for the holiday Monday that MIT refers to as Indigenous Peoples’ Day.
Write to Andrew Bary at [email protected]
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