Minnesota Leads Public School Endowments With 20.4% Gain

September 16, 2014  | Bloomberg

The University of Minnesota is the leader among public U.S. universities with the largest endowments that have reported returns for the year ended June 30.

“We’re basking in the glow of 20.4 percent,” Stuart Mason, chief investment officer of the foundation that oversees $2.5 billion for the Minnesota system based in Minneapolis, said in a telephone interview. “Everything seems to be increasing in value.”

The University of California, which has an endowment of more than $6 billion, gained 18.7 percent in fiscal 2014, it said last week. It ranks second among schools that have reported returns. Pennsylvania State University was third with 17.9 percent. So far, nine of 15 state systems with the biggest endowments have posted results. Ohio State University, at 14.4 percent, had the smallest gain, according to data compiled by Bloomberg.

Publicly traded stocks are fueling much of the performance, as they have in most years since the 2008 financial crisis. The Standard & Poor’s 500 Index climbed 21 percent in the 12 months through June 30 while a Barclays global bond index rose 5.7 percent. A portfolio of 60 percent stocks and 40 percent bonds would have produced a return of 15.1 percent, the data show.

New Highs

The results signal a bright spot for the finances of public systems, which have struggled with declining funding from their state governments. Seven institutions beat Wilshire Associates’ one-year median gain of 15.6 percent for endowments and foundations, according to data compiled by Bloomberg. The other two systems trailed by 1.2 percentage points or less.

The returns mean many schools are reaching new highs for assets under management, erasing double-digit investment losses in the wake of the credit crisis. The average endowment and foundation lost 18 percent in fiscal 2009. Since then, this year’s average gain was the second-strongest, following a 19.4 percent posting in fiscal 2011, according to Wilshire.

Many public universities are adding resources, both internal and external, to handle their assets, said Heather Myers, managing director of Non-Profits at Russell Investments in New York.

“Improving the managements of their endowment pools is required, both to prove to the donors that the universities can and will be good stewards to their assets as well as to increase the probability of growing due to strong investment acumen,” Myers said in an e-mail.

Dartmouth, MIT

The University of Texas, the wealthiest public system with an endowment of more than $20 billion, had a 15.9 percent return in the 12 months through June 30. Some of the largest public endowments, such as the University of Michigan and University of Virginia, haven’t released results yet.

Many of the nation’s private schools, including Harvard University, begin reporting their investment returns later this month. Dartmouth College in Hanover, New Hampshire said today it had a 19.2 percent gain on its investments in the year through June. Last week, the Massachusetts Institute of Technology, based in Cambridge, Massachusetts, posted a 19.2 percent return.

Mason, the investment chief at Minnesota, said the endowment benefited from a shift into more diversified investments beginning in 2004, and more recently cut its exposure to hedge funds. The management company’s invested private capital, half of which is held in venture capital funds, rose 31.4 percent for the year, beating an internal benchmark of 18.6 percent.

“There’s a revolution in technology going on,” Mason said. “There’s enormous opportunity in good tech-oriented venture.”

The following is a list of top-performing public university systems, based on endowment returns as of June 30, 2014:

University of Minnesota       20.4%
University of California      18.7%
Pennsylvania State University 17.9%
University of Wisconsin       16.9%
University of Texas System    15.9%
University of Washington      15.8%
University of North Carolina  15.7%
University of Illinois        14.7%
Ohio State University         14.4%