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How The 10 Richest Universities Invest Their Money 2016

by trusted insight posted 2years ago 2959 views

In the United States, the ten largest university endowments manage a total of $177 billion in assets (close to a third of the national total). How they invest such a vast pool of capital sets an important benchmark for other institutional investors and, more importantly, affect their own profits.

On average, U.S. university endowments allocate 51 percent in alternative assets, according to a 2015 study (the latest available) by the National Association of College and University Business Officers (NACUBO) that surveyed 812 endowments nationally. The ten largest endowments, eight of which manage greater than $10 billion in assets, like-mindedly have a stronger preference in alternative assets.

The median alternative asset allocation among the top ten is 60.5 percent. Even Massachusetts Institute of Technology, the least alternative-committing, invests slightly more in alternatives than its smaller peers in the country. MIT currently has 52.3 percent in private equity, real assets, real estate and absolute return strategies. The rest is invested in public equities and fixed income.

MIT Investment Management Company, the investment firm managing the university endowment, sets the goal to generate high return without exceptional volatility, says its 2016 treasurer’s report. Therefore, its investment policy favors equity investments over fixed income instruments and is heavily weighted toward less efficient markets such as private equity, real estate and real assets, the report says.

By contrast, UTIMCO is the most aggressive investor in the alternative space (and also the best performing fund of the top ten in 2016 -- returning 3.92 percent). 81 percent of the $17.9 billion endowment fund was allocated in private equity, real assets, real estate and hedge funds. Compared with the previous year, UTIMCO increased stakes in private equity, while it reduced hedge fund commitments. Private investments were one of the biggest contributors to the 2016 gain, UTIMCO noted in its annual report.

Yale, the pioneer in alternative investing, maintains a diversified structure similar to previous years. In 2016, the fund had 73.5 percent of assets allocated in leveraged buyouts, venture capital, real assets and absolute return strategies. Yale targets a minimum allocation of -- and currently has -- 30 percent to non-correlated assets, meaning cash, bonds and absolute return, according to the investment office website.

It also seeks to limit illiquid assets -- venture capital, leveraged buyouts, real estate and natural resources -- to 50 percent of the portfolio. Yale currently has 51 percent allocated in these asset categories.

Evidently, the largest endowments share the philosophy of diversification. While allocation by asset class says a good deal about an endowment’s investment preference and risk tolerance, it is too broad a metric to correlate to returns, as big contributors or detractors to the bottom line are often funds invested by certain managers or in specific sectors, rather than one entire asset class.  

(Please check back on Thursday for a rundown on how these endowments performed in 2016 and what they did right -- or wrong, in most cases.)

Below are detailed asset allocations of the ten largest university endowments in the United States:

 

1. Harvard University - Harvard Management Company
CEO: Stephen Blyth (Blyth went on leave in May 2016 and later resigned. Chief operating officer Robert A. Ettl acted as the interim CEO until Harvard appointed N.P. Narvekar CEO in September 2016. In March, Richard Slocum will join the management company in the newly created role of chief investment officer.) 
AUM: $35.7 billion
Asset Allocation:
Public Equity: 29%
Fixed Income: 12.5%
Private Equity: 20%
Real Assets & Real Estate: 24.5%
Hedge Funds: 14%

2. Yale University - Yale Investments Office
CIO: David Swensen
AUM: $25.4 billion
Asset Allocation:
Public Equity: 19%
Fixed Income: 7.5%
Private Equity: 31% (16% venture capital + 15 leveraged buyout funds)
Real Assets & Real Estate: 20%
Absolute Return: 22.5%

3. Stanford University - Stanford Management Company
President and CEO: Robert Wallace
AUM: $22.4 billion
Asset Allocation: 
Public Equity: 29%
Fixed Income: 5%
Private Equity: 26%
Real Assets & Real Estate: 18%
Hedge Funds: 22%

4. Princeton University - Princeton University Investment Company (PRINCO)
President: Andrew Golden
AUM: $22.2 billion
Asset Allocation:
Public Equity: 24.4%
Fixed Income: 2.8%
Private Equity: 32.5%
Real Assets & Real Estate: 14%
Hedge Funds: 26.4%

5. University of Texas Investment Management Company (UTIMCO) -- Permanent University Fund)
CIO: Bruce Zimmerman (resigned in October 2016. His role was succeeded by Mark Warner as interim CIO)
AUM: $17.9 billion
Asset Allocation:
Public Equity: 14%
Fixed Income: 5%
Private Equity: 25%
Real Assets & Real Estate: 29%
Hedge Funds: 27%

6. Massachusetts Institute of Technology -- MIT Investment Management Company (MITIMCo)
CIO: Seth Alexander
AUM: $13.2 billion
Asset Allocation: 
Public Equity: 33.8%
Fixed Income: 14%
Private Equity: 18%
Real Assets & Real Estate: 24%
Hedge Funds: 10.4%

7. Northwestern University - Northwestern University Investment Office
CIO: William H. McLean
AUM: $10.8 billion
Asset Allocation:
Public Equity: 29%
Fixed Income: 15.1%
Private Equity: 20.1%
Real Assets & Real Estate: 15.4%
Hedge Funds: 20.4%

8. University of Pennsylvania - University of Pennsylvania Office of Investments
CIO: Peter Ammon
AUM: $10.7 billion
Asset Allocation:
Public Equity: 34%
Fixed Income: 6.1%
Private Equity: 16.3%
Real Assets & Real Estate: 13%
Hedge Funds: 30.6%

9. University of Michigan - University of Michigan Investment Office
CIO: Erik Lundberg
AUM: $9.7 billion
Asset Allocation:
Public Equity: 25.9%
Fixed Income: 10.6%
Private Equity: 26.2%
Real Assets & Real Estate: 16.4%
Hedge Funds: 20.9%

10. Columbia University -- Columbia Investment Management Company
CEO: Nirmal.P. Narvekar (Narvekar left to join Harvard in September 2016. His role is succeeded by Peter Holland)
AUM: $9 billion
Asset Allocation:
Public Equity: 16.7%
Fixed Income: 8%
Private Equity: 22%
Real Assets & Real Estate: 18.9%
Hedge Funds: 34.4%


Check out last year's top ten university endowments' asset allocation here.
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