Yalies’ Fiscal Returns Trump Harvard

They’ve got an inferior football team and a lower U.S. News ranking, but Yalies are beating their Cantab counterparts in at least one category: endowment returns. In the 12-month period ending June 30, the New Haven safety school’s endowment-return rate topped Harvard’s by 6.2 percentage points—the second straight year that the Elis’ investors have bested the Crimson’s team.

Yale’s $18.0 billion endowment still pales in comparison to Harvard’s $29.2 billion treasure chest. And both universities easily outpaced the S&P 500 stock index, which increased by 8.6 percent during the 2006 fiscal year. But Yale’s remarkable 22.9 percent return rate—and Harvard’s comparatively-modest 16.7 percent mark—suggest that Yale’s “external management” approach to its endowment is paying dividends.

Yale out-sources much of its endowment-management work to hedge funds and other investment firms. Harvard, by contrast, uses in-house investors to handle a large chunk of its own holdings. Harvard pays hefty salaries to its own moneymen—the top-paid in-house investor earned $17.9 million in the 2005 fiscal year—but the University says that it pays less in fees to external managers as a result. Universities are required to reveal the salaries of their highest-paid employees on their federal and state tax returns—but they aren’t required to report the fees paid to external fund managers.

Yale’s chief investment officer, David Swensen, who reportedly earned $1.15 million in 2004, has criticized Harvard’s high in-house salaries. Under his leadership, the Elis’ endowment has produced annualized returns of 17.2 percent over the past decade, Yale announced yesterday. Harvard’s 10-year annualized return is 15.2 percent, according to figures released by the University last week.

Author and playwright William A. Strauss ’69 said yesterday that “Yale’s announcement confirms that you can pay reasonable compensation to a fund-manager and get outstanding performance.” Strauss and several fellow alums from the Class of ’69 have urged the University to use its endowment largesse to freeze tuition, eliminate undergraduate borrowing, and provide debt relief to recent grads in modestly-paying jobs.

Harvard’s endowment chief, Mohamed A. El-Erian, was traveling and could not be reached for comment yesterday.

Yale’s endowment return rate also eclipsed that of the third-richest university, Stanford. The California party school reported returns of 19.4 percent this past year, raising its overall holdings to $15.2 billion.

—Cyrus M. Mossavar-Rahmani contributed to the reporting of this story.

—Staff writer Daniel J. Hemel can be reached at hemel@fas.harvard.edu.