Returns on U.S. college endowments for fiscal year 2016 are likely to show the worst slide in performance since the 2009 recession, Bloomberg reports.
According to the Wilshire Trust Universe Comparison Service, which reports quarterly on about thirteen hundred plans and $3.6 trillion in assets under management, the endowments of colleges and universities overall lost a median 0.74 percent in the fiscal year that ended June 30, while funds with at least $500 million lost a median 0.73 percent. Institutions of higher education will report their FY16 returns in the fall. After double-digit gains in FY14, endowment performance fell in FY15 to 3.6 percent for the largest funds and 2.8 percent for all endowments, the Wilshire service reports. Overall performance was affected by exceptionally poor results in August, the worst month in more than three years for the Standard & Poor's 500 Index, amid concerns about slowing global growth.
The largest endowments began diversifying their portfolios beyond the United States three decades ago, with many following a model developed by Yale University, which now invests more than 50 percent of its endowment in private equity and other illiquid assets. According to the National Association of College and University Business Officers and Commonfund, endowments with more than $1 billion allocated just 13 percent of their assets to domestic equities in FY15 while allocating 57 percent to alternative strategies.
"Going forward, expected returns are going to be subpar, perhaps much lower than they have historically experienced," Maggie Ralbovsky, a managing director at Wilshire's consulting business, told Bloomberg. "Diversification hasn't helped in the last five years. The more diverse you are, the worse off you are."