Not One Ivy League Endowment Beat a Simple U.S. 60-40 Portfolio Over Ten Years

A new report shows that the complex and expensive endowment model hasn’t proved its worth since the financial crisis.

Illustration by II

Illustration by II

The performance of Ivy League endowments has trailed a passive portfolio of 60 percent U.S. stocks and 40 percent bonds over the past ten years — and has been more volatile to boot, according to a new report from research and analytics provider Markov Processes International.

MPI says this is the first time in the 16 years that it has been collecting data on all the Ivies that Yale, Harvard and the other elite colleges have lagged the indexed portfolio when looked at over a decade. The firm looked at performance for the period between July 1, 2008 and June 30, 2018.

What’s more, MPI found that the volatility of the endowment model — which includes large allocations to private equity, real estate, infrastructure and other illiquid investments — is significantly higher than that of a simple mix of stocks and bonds.

The performance of Ivy League and other college endowments is closely watched by the industry, as other institutional investors have been adopting some version of the portfolio allocation model — often referred to as the Yale Model, pioneered by Yale CIO David Swensen — since the early 2000s. The perennial question has been whether the addition of expensive alternative investments, including hedge funds, is worth the trouble, given the cost, illiquidity, and underperformance of many of these funds.

“There’s a tug of war going on in endowments, as well as in asset management,” said Jeff Schwartz, president of MPI, in a phone interview. “A lot of people are hoping that there is no point in investing in these complex alternatives. Then you have devotees of the Yale model who want to show there is a payoff for putting so much of the portfolio into private equity, VC, and all the things we think of as sophisticated and expensive. This report shows that the reality is much more complex than either narrative.”


Over the most recent decade, Columbia and Princeton led the pack, both delivering 8 percent annually, according to MPI. Harvard turned in returns of 4.5 percent over the period, with Cornell at 4.8 percent. The 60-40 portfolio returned 8.1 percent.

[II Deep Dive: Yale’s Risk-Adjusted Returns Not So ‘Superior,’ Firm Argues]

The news wasn’t all bad for the Ivy endowments. Though the endowments didn’t beat a plain-vanilla portfolio over ten years, they did outpace it when looked at over the most recent 15-year period on an annualized basis. Results varied widely, however. On the low end, Cornell earned 8.01 percent annually during the time period, while Yale generated an 11.18 percent return, coming out on top.

And while the ten-year period measured by MPI wasn’t stellar for the schools, fiscal year 2018 was a good one. Every endowment, except Columbia University, had double-digit returns, and all outperformed the 60-40 portfolio. According to MPI’s returns-based analysis, private equity and venture capital investments were the primary drivers behind most endowments’ gains.

The returns this year were similar to 2017, with Harvard’s performance still far behind its peers, at 10 percent. Harvard has spent seven years at or near the bottom of this group. Princeton was the best performer in fiscal 2018, with returns of 14.2 percent. Columbia generated a 9 percent return, falling to the bottom from No. 3 last year.

Although MPI only has data for four schools going back 20 years, all of those — including Harvard — beat the 60-40 benchmark, MPI found.

The Ivy League endowments’ investments in alternative funds have remained high, according to MPI. Many are increasing their allocations, with Brown upping private equity investments faster than other endowments.

“We observe that the high endowment returns are accompanied by high risk. Ivy risks are noticeably higher than a 60-40 portfolio, with private equity and real estate contributing the most across the board,” wrote the report’s authors. “In fact, equity (public and private) and real estate risk are the two dominant sources of risk across the Ivies, indicating their portfolios are not as diversified as many believe them to be,” they continued.

The endowment returns were measured against a U.S. portfolio, which has generated extraordinary returns over the past ten years. Though this is the standard benchmark for all endowments, according to the report, investors that had any international holdings would have lagged a U.S-.only portfolio over the past decade.