Stanford Endowment Lost 4% After Gaining 40% on Slumping Stock Market

  • Stanford University’s endowment posted a 4% loss after gaining 40% the year before, per the WSJ. 
  • Other leading US schools have seen big swings from record returns on endowments to losses, it reported. 
  • The declines could have been deeper if venture capital returns had reflected the stock market.

Stanford University has lost 4.2% on its investments after pulling in a 40.1% return the year before, as deteriorating asset markets hit college endowments, the Wall Street Journal reported

It was among several academic institutions that saw falling returns on investments in the fiscal year ended June 30, the WSJ reported Monday. The turnaround in fortunes came alongside a slide in stocks and other assets as investors grappled with Federal Reserve interest rate hikes.

But the declines for university portfolios — the worst since 2009 — could have been even deeper if venture capital valuations had tracked the sharp falls in assets on public markets, endowment experts told the WSJ.

The record returns the previous year were boosted by exposure to VC funds, which delivered soaring results but count unrealized gains from the early-stage businesses they invest in.

Brown University’s endowment lost 4.6% after posting a 51.5% increase the year prior, while the Massachusetts Institute of Technology  saw a 5.3% drop, compared with a 55.5% rise last year.

Meanwhile, Harvard University, the richest college in the US with a $51 billion endowment, saw a 1.8% loss after scoring a 33.6% gain. Stanford ranked third out of the 10 US universities with the largest endowments in 2021, per Statista, with an endowment fund value of $37.8 billion.

An endowment is a pool of money largely made up of donations and invested in a way that generates income to support the mission and work of a university or non-profit organization. Typically, endowments are put into stocks, bonds and other investments.

Universities also escaped deeper losses by diversifying their portfolios into the likes of real estate and private credit, beyond public markets, research firm Cambridge Associates told the WSJ.

The benchmark US stock index, the S&P 500, dropped about 12% in the year to end of June, and notched its worst first half since 1970 with a slide of 20.6%. Soaring inflation, Russia’s war on Ukraine, the lingering effects of the global pandemic and the Fed’s rate hikes put pressure on markets over the first six months of 2022. 

The US central bank has raised interest rates at the fastest pace in history, lifting the benchmark rate from near zero to a current range of 3% to 3.25%. Markets currently see an 88% chance of another 75 basis point increase when the Fed ends its meeting Wednesday, according to the FedWatch Tool.

Read More: Stanford Endowment Lost 4% After Gaining 40% on Slumping Stock Market

2022-11-01 10:38:13

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