New Breed of Endowment Managers Beats Harvard at Its Own Game

May 15, 2015 | bLOOMBERG


The Ivy League is losing its historic lead on one of education’s most important playing fields: endowment investing.

In the heart of the Iowa prairie, tiny Grinnell College last year beat all its Eastern rivals, with a 20.4 percent return, according to an exclusive Bloomberg ranking of endowment performance. It tied for No. 1 with another heartland institution, the University of Minnesota, a public system better known for its top-ranked Golden Gophers men’s hockey team.

Over the last five years, the story is similar. The University of Virginia was tops and Swarthmore College, a small liberal arts school with Quaker roots, wasn’t far behind. Harvard, the oldest U.S. college, the world’s richest and long considered among the savviest investors, ranked No. 65. Over a decade, Bowdoin College in Maine is starting to challenge Yale University, long the name to beat.


Those are some of the findings of the Bloomberg ranking of the wealthiest U.S. colleges’ investment performance. Yale and Harvard pioneered a high-risk strategy of boosting returns with long-term bets on exotic investments, such as private equity, commodities and timber. That approach has become commonplace; others now challenge and, in some cases, surpass the leaders.

“There’s an emerging new breed of endowment stars,” says Steven Kaplan, a finance professor at the University of Chicago’s Booth School of Business. Yale and Harvard “figured it out first, but it’s hard to maintain an advantage.”

Exclusive Investments


Over the last year, Bloomberg News scoured documents and interviewed investment officers across the country, compiling a decade’s worth of returns through June 30. Available to Bloomberg terminal subscribers, the ranking reveals data once accessible only to endowment insiders. Of the 100 schools with the largest endowments, Bloomberg obtained complete performance data for 85.

Though managers declined to discuss individual investments, top schools tended to hold more than 60 percent of their portfolios in hedge funds, buyout funds, real estate and other exclusive fare. Some, such as Grinnell, were fortunate enough to parlay their alumni connections into access to top venture funds such as Sequoia Capital, famed for its winning Silicon Valley investments in companies such as Google Inc., YouTube Inc. and, more recently, WhatsApp Inc., the mobile-messaging outfit.

Midwestern Powerhouse


The wealthiest colleges rely on endowments to support as much as three-quarters of their budgets, funding everything from professorships to art museums to financial aid. The riches mean places like Grinnell can use its $1.8 billion endowment to lure top students with scholarships, while poorer Midwestern liberal arts counterparts struggle with declining enrollment.

In the 1960s and 1970s, Grinnell prospered because of investment advice from Nebraska billionaire Warren Buffett, a former trustee. Over the last decade, Grinnell, without help from the master, has sometimes struggled. In recent years, it has trimmed its exposure to regular U.S. stocks and shifted into international equity, posting stellar recent returns. It also has holdings in at least 30 private-equity funds, including seven venture-capital vehicles started by Sequoia, tax filings show.

“We only have a small number of core partners, and they were significant drivers of performance,” says Scott Wilson, a Grinnell alumnus hired in 2010 from Barclays Plc, the London-based financial-services company.

Valley Visits

Stuart Mason, who oversees the University of Minnesota’s $1.3 billion endowment, also credits venture capital for its top one-year record. Mason said he spends a week every month in Silicon Valley scouting for investments in companies that back technology startups. The university also has a foundation managing an endowment that reports performance separately.

University of Virginia, the best-performing school over the last five years, held only 31 percent of its investments in publicly traded stocks, bonds and cash, according to its annual report. John Macfarlane, former vice chairman of famed hedge-fund manager Paul Tudor Jones’s company, sits on the board of UVA’s investment-management division. Jones is also an alum and major donor. Lee Ainslee, a UVA graduate who worked at hedge-fund manager Julian Robertson’s Tiger Management, has managed money for the university through his company, Maverick Capital, tax filings show.

Oil and Gas

Lawrence Kochard, UVA’s investment chief, said stakes in oil and gas companies helped generate a 15.2 percent annual return over five years. Its holdings include Denham Capital, a private-equity firm specializing in natural resources and founded by Stuart Porter, a former Harvard money manager, filings show. Like Grinnell, it has held positions in Sequoia.

By contrast, Swarthmore -- one of the nation’s wealthiest liberal-arts colleges, with a $1.9 billion endowment and only 1,500 students -- prospered with old-fashioned stock picking. Publicly traded stocks made up almost half of its portfolio last year, helping to generate a 14 percent average annual gain over five years.

“My view on private equity is it is equity on steroids,” says Mark Amstutz, chief investment officer at Swarthmore, near Philadelphia. “You don’t want to own anything private unless you get a higher return.”

Familiar names still appear at the top. Over the last decade, Yale reigns nearly supreme, tied with Columbia for No. 1, with an average annual return of 11 percent. Other stars include Notre Dame, Duke, Princeton and the Massachusetts Institute of Technology, all of which rely on private equity-style investments.

Alumni Ties

So did Bowdoin, which also ranked in the top 10. A liberal arts college known for a policy of making standardized tests optional for admission, the school has credited money manager Stanley F. Druckenmiller, a former trustee and a member of the class of 1975, with building its endowment. Bowdoin has a stake in hedge funds such as BlueMountain Capital Management, where trustee and alumnus Jes Staley is a managing partner, tax filings show.

Notably absent: Harvard, whose private-equity investments took a hit in the credit crisis of 2008, from which it has yet to fully recover. Over the decade, Harvard’s 8.9 percent annual return ranks No. 23. Endowment chief Jane Mendillo left last year and was replaced by Stephen Blyth, who was head of trading. Harvard spokesman Paul Andrew declined to comment.

Of course, there were losers. Ohio State University posted the lowest 10-year annual return, 5.4 percent. The college, which has a $3.5 billion endowment, replaced its chief investment officer last year.

Kentucky Caution

Ohio State overhauled its investment office in 2008 to reduce risk and produce more consistent returns and recent performance has been stronger, according to Chief Investment Officer John Lane. The school is now “well positioned in the competitive marketplace,” with more alternative investments diversifying its portfolio, Lane said in an e-mail.

Another laggard was Berea College, which provides a free education, primarily to poor students from Appalachia. Its 6.6 percent annual return over a decade reflects a cautious approach because it relies so heavily on its $1.1 billion endowment, according to Vice President for Finance Jeff Amburgey. The Kentucky school recently gave its outside money manager more discretion to take more chances on unconventional investments.

The risk isn’t academic. Grinnell ranks first in one-year returns and in the top 20 over five years. Still, its 10-year annual gain of 6.4 percent is among the worst. Like other longer-term laggards, large holdings of domestic stocks tanked during the credit crisis.The result: it is debating whether it can still admit students without regard to their finances. As ever, the last will be first -- and vice-versa.