Brown an outlier as most Ivy League endowments underperform 60/40 mix

For the second consecutive year, the Ivy League endowment funds on average have underperformed a 60/40 portfolio of U.S. domestic stocks and bonds, despite being investors in alternative investments. The stats were compiled by Markov Processes International (MPI), which found that the average return for fiscal year 2020 was 6.3% vs. 8.8% for the 60/40 traditional stock and bond mix. The results also showed significant dispersion among the eight-member Ivy League schools -- even wider than last year’s figures. Leading the way was Brown University with gains of 12%. Brown has been a top performer for two straight years although it has a similar asset allocation to some of the other Ivies. Last year, MPI linked the wide dispersion of results to the extremely wide range of returns of private investments that make up a significant portion of most of these elite endowment portfolios. The average Ivy League school’s annualized 10-year returns were 9.5% – slightly below the domestic 60/40 portfolio 10-year results at 10.1%. After a tie in 2016 (both posting 6.9%), the Ivy League average underperformed the passive 60/40 benchmark on a 10-year rolling basis, for the fourth fiscal year in a row. When it comes to alternative investments, venture capital and private equity returns lead the way. Venture capital returned 11% in 2020, while private equity was up 10.2%. While traditional stocks and bonds were also up, negative average returns were reported notably in commodities (-17.4%), real estate (-2%) and hedge funds (-0.6%). There has been a gap in performance results between private equity funds that could be attributed to leverage, timing of investments and/or sector allocation decisions if proper quantitative tools are used, according to MPI. Previously, the use of quantitative techniques, such as returns-based Style Analysis (pioneered by MPI in the early 90’s), has been limited in their application to private investments. However, MPI is in the middle of releasing a new private equity model to decipher complex private equity funds and separate skill from luck and leverage. By using only fund performance data, such quantitative technique -- being objective and scalable – brings the same level of transparency to individual private equity funds as it does for complex fixed income strategies and hedge funds, officials added. Cornell University reported the lowest 2020 return with gains of only 1.9%. Ivy endowment results have been fairly consistent for the past two fiscal years with the exception of University of Pennsylvania (3.4%) and Cornell -- both exhibiting a significant drop in returns in 2020 as compared to 2019. The largest of the Ivy League endowments, Harvard University, was up from its 2019 returns of 6.5% with a gain of 7.3%. As previously reported by Alternatives Watch, the outperformance of Harvard’s public markets position, which is essentially a $23 billion combined public equities and hedge funds portfolio, has been strong over the last two years. HMC CEO Narv Narvekar characterized the public markets segment performance in his memo this week to the Harvard community as “very good, albeit not excellent.” As MPI has done previously in 2015, 2016, 2017, 2018 and 2019, the research group plans in its upcoming 2020 annual report to dissect the annual endowment returns into asset class performance drivers to quantify and explain the difference in results between the schools.

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