Sunday, November 9, 2008

College endowments predicted to take a big hit

It looks like college endowments, with their bets in alternative assets, aren't escaping bear market that has dealt a hurting to the rest of us. This fact probably doesn't come as a surprise to anyone, but until recently these endowments have seemed invincible, racking up returns that were the envy of everyone. Barron's made some projections on the endowment's losses.

With cash-strapped endowments and other institutional investors looking to sell some of their private-equity funds, an informal secondary market is developing. The going rate is said to be about 50% of stated investment values.

Commodities -- another favored asset class -- have plummeted more than 40% since June 30, with publicly traded oil-and-gas stocks off 50%. Real-estate investment trusts are down 35%. (The S&P 500 is off 28% in that span.)

Contrast this with some endowment's returns over the last decade (these returns are up through June 30.
Harvard's endowment was up an average of 13.8% annually, bringing it to $36.9 billion as of June 30, tops in the academic world. Yale's endowment grew at an average annual pace of 16.3% in the same span, to $22.9 billion, making it second to Harvard in size. Princeton's endowment rose at a 14.9% annual clip, to $16.4 billion. Stanford, in Palo Alto, Calif., also has shined; its endowment rose by 14.2% a year, to $20.4 billion.
The turnaround is staggering. Not entirely unexpected in this market, to be sure, but it goes to show you that even the very best money managers are feeling extraordinary pain.