Penn State Endowment Returns 7.8% in 2018 (spoiler: that's not good)

[interrobang]

The investment portfolio for Penn State University’s endowment returned 7.8% for fiscal year 2018, missing its benchmark of 9.0%, and falling below the 8.3% median return of universities as measured by Cambridge Associates. Last year, the endowment returned 12.6%.

The performance is among the lowest reported by other major public universities so far this year. For example, University of Virginia, University of Texas, Michigan State, and University of California reported returns of 11.4%, 11.27%, 11.1%, and 8.9% this year, respectively.

https://www.ai-cio.com/news/penn-state-endowment-returns-7-8-2018/

 

[Achowalogan]

Purpose of endowment is not to raise funds for Penn State. Endowment exists for financial management fees to be paid to BOT cronies - in this regard the endowment is highly successful.

 

[NatLion]

The investment portfolio for Penn State University’s endowment returned 7.8% for fiscal year 2018, missing its benchmark of 9.0%, and falling below the 8.3% median return of universities as measured by Cambridge Associates. Last year, the endowment returned 12.6%.

The performance is among the lowest reported by other major public universities so far this year. For example, University of Virginia, University of Texas, Michigan State, and University of California reported returns of 11.4%, 11.27%, 11.1%, and 8.9% this year, respectively.

https://www.ai-cio.com/news/penn-state-endowment-returns-7-8-2018/

All of this means little unless you can tell me the risk they were taking relative to the others.

 

[NatLion]

When compared to the risk and allocation adjusted benchmarks, the PSU endowment fund underperformed (again). This is not news.
I have provided that data over the last several years - data that confirms and quantifies the consistent underperformance.

It’s all out there for anyone who cares enough to see it.
No one on the the PSU Board - the folks who are supposed to care - does. That is highly unlikely to change.

So, someone is keeping track of and publishing sharpe ratios for all of these endowment funds and the individual asset classes they invest in? I was not aware of that...

 

[NatLion]

No one has to, needs to, or is obliged to - “tell you” that. The information is publicly available to anyone who cares (and who understands the. nature of the topics you raise).

It is a figure of speech, duh.

 

[NatLion]

You seem to be interested....
The data is available, perhaps you could calculate the Sharpe Ratios and then report back?

Perhaps you could include an informative discussion of the pluses and minuses of evaluations vav the Sharpe Ratio? Compare its usefulness to the Information Ratio? Maybe the Paradox of “Negative Sharpe”?

Perhaps evaluate the degree to which the Modigliani method should be used within an evaluation? Along with some of the CAPM / Alpha constructs?

All that information is available to the interested observer.



Or, you could do absolutely nothing...... and make yourself suitable for a seat on the PSU Board (so long as you were willing to clap when the “Appluad Now” light comes on, and minimize your personal consumption of the onion dip )

Let me make this simple for you. The OP came to a conclusion, stated in his headline, that the returns are "not good" and provided a link to an article. There is nothing in the article that allows one to draw the conclusion that the returns are "not good." In order to decide if the returns are "good" or "not good" we need a lot more information. Information about liquidity constraints, the benchmark, volatility, peers, etc, etc. Looking only at absolute returns is nonsense, and based on your last post you should know this.

Oh, and if you can provide a link information ratios of university endowments, I would be interested to see that. Maybe then we can judge "good" v. "not good."

 

[NatLion]

I will give one example of why the details matter, then be done with this.

Penn state has a relatively small $3B endowment fund. Compare Texas at $30B, Princeton at $26B, Yale at $29B. Because of the small endowment, Penn State relies more heavily (vis-a-vis peers) on its endowment for some of its operating expenses, particularly in years when donations are slow. This reliance dictates the liquidity requirements of the portfolio -- i.e PSU has to be more liquid than many others. So comparing non-risk-adjusted returns for PSU vs. these peers is just silly since they face differing operational constraints. You need to make risk adjustments, which requires more information than is publicly made available by all these endowment funds.

 

[91Joe95]

I will give one example of why the details matter, then be done with this.

Penn state has a relatively small $3B endowment fund. Compare Texas at $30B, Princeton at $26B, Yale at $29B. Because of the small endowment, Penn State relies more heavily (vis-a-vis peers) on its endowment for some of its operating expenses, particularly in years when donations are slow. This reliance dictates the liquidity requirements of the portfolio -- i.e PSU has to be more liquid than many others. So comparing non-risk-adjusted returns for PSU vs. these peers is just silly since they face differing operational constraints. You need to make risk adjustments, which requires more information than is publicly made available by all these endowment funds.

Too bad they pissed off all those alumni to the point donations dropped off so precipitously.

 

[Media Fan]

The investment portfolio for Penn State University’s endowment returned 7.8% for fiscal year 2018, missing its benchmark of 9.0%, and falling below the 8.3% median return of universities as measured by Cambridge Associates. Last year, the endowment returned 12.6%.

The performance is among the lowest reported by other major public universities so far this year. For example, University of Virginia, University of Texas, Michigan State, and University of California reported returns of 11.4%, 11.27%, 11.1%, and 8.9% this year, respectively.

https://www.ai-cio.com/news/penn-state-endowment-returns-7-8-2018/

Research has tended to show that asset allocation determines a very high % of return. Timing of trades in the fund and flows in/out also have an effect. Security selection is a factor, but not as much as one might think.
Attribution analysis , if available, would be useful --it deconstructs the portfolio on an incremental basis.

According to Penn State’s investment office, the university’s long-term portfolio had 50% of its assets invested in domestic and foreign public equities, 20% in private equity and venture capital, 12% in fixed income/short-term investments, 10% in diversifying (hedged) strategies, and 8% in real assets.

 

[cjrugger]

Well I guess we've found a new thing to complain about

 

[NatLion]

“New”?

This has been an ongoing issue for the better part of a decade (at least).
Whether an individual cares about it - or has any reason to care about it - is a different issue.

Raw returns, no risk adjustment, but clearly PSU is not an outlier. Clearly Stormin' has an agenda, facts be-damned.

FUND 10-Year Absolute (AR)
UT Long-term Fund 5.8
UT Permanent Fund 5.8
University of Colorado Foundation 6.4
Dartmouth College 7.6
Massachusetts Institute of Technology 8.6
University of Virginia 7.9
University of Kansas 5.5
University of California 6.4
University of Missouri 6.3
University of Pennsylvania 7.7
Duke University 6.6
Yale University 7.4
Bowdoin College 8.8
Brown University 5.9
Michigan State University 6.0
Stanford University 6.3
Princeton University 8.0
Columbia University 8.0
Pennsylvania State University 6.6

 

[cjrugger]

“New”?

This has been an ongoing issue for the better part of a decade (at least).
Whether an individual cares about it - or has any reason to care about it - is a different issue.

Nah its actually not an issue but go ahead and stand on the table for some reason

 

[NatLion]

LMAO......

After yapping on about the need to compare apples-to-apples (which is, of course, fundamental)...... you go and post, by your own admission:


“Raw returns, no risk adjustment”

And then cherry-pick some non-adjusted returns to try to make PSU’s putrid performance look like “not an outlier”. (And, even then, your list is comprised of funds that largely outperformed PSU)
Despite the fact that you include stuff that’s not even in the same conversation with an endowment like PSU’s
Like the Texas Permanent Fund - Which is a fund run by the State of Texas, specifically to enhance the State’s appropriations to higher ed..... not run by UTexas........
And stuff like the Dartmouth Endowment, which - OTTOMH - has an equities exposure of only about 35%. .....

Why don’t you just compare the PSU Endowment performance to that of your local Bank’s Savings Accounts? That would be just about as righteous.


It’s one thing to be too stupid (or just too ignorant) to know better....... but to deliberately deceive and lie to people - at the service of Scoundrels - when you do know better, is just pathetic.
And, the truth is, you’re only wasting your propaganda anyway - - - no one cares! LOL



And yes - for damn sure - I have an agenda. I’m quite the strident advocate for responsible governance for PSU.

What’s YOUR agenda?

Reminder to self: never click on "show ignored content," had to have had a good reason to put they on that list to begin with. Second reminder to self: never engage fools, never engages fools, never engage fools, ...

 

[sluggo72]

The investment portfolio for Penn State University’s endowment returned 7.8% for fiscal year 2018, missing its benchmark of 9.0%, and falling below the 8.3% median return of universities as measured by Cambridge Associates. Last year, the endowment returned 12.6%.

The performance is among the lowest reported by other major public universities so far this year. For example, University of Virginia, University of Texas, Michigan State, and University of California reported returns of 11.4%, 11.27%, 11.1%, and 8.9% this year, respectively.

https://www.ai-cio.com/news/penn-state-endowment-returns-7-8-2018/

from the looks of things, is this a meeting of the investment committee and investment adviser at PSU?? Just asking...

 

[YogiMan71]

The S&P 500 has averaged 14.68% since 1/1/09 so the entire list of Universities Natlion posted are highly conservative and barely doing as well as someone who just put all the funds in an S&P 500 etf. Obviously for cash liquidity and balancing risk this can’t be done but you would think they would perform better the 6-7%. I am 69 and moderately aggressive and have averaged 13.71% since 1/1/09. I have no bonds and have been 100% in stocks.

 

[Art]

FWIW, we should get a statement of the annual fees that the university has paid for the management of the endowment.

You might want to add the cost of the Office of Investment Management to that. You can bet it ain't cheap.

 

[NatLion]

The S&P 500 has averaged 14.68% since 1/1/09 so the entire list of Universities Natlion posted are highly conservative and barely doing as well as someone who just put all the funds in an S&P 500 etf. Obviously for cash liquidity and balancing risk this can’t be done but you would think they would perform better the 6-7%. I am 69 and moderately aggressive and have averaged 13.71% since 1/1/09. I have no bonds and have been 100% in stocks.

FYI, 10-yr returns are beginning 1/1/08 -- well before crisis bottomed. The comparable SPX total return (w/ div) for that period is: 9.6%.

And so, I would repeat the theme of yesterday which is that lower risk gets you lower returns over the long-haul, and that absent data on the specific risks these funds are taking we have insufficient information to say much about how well they are performing.

Now, one could rightly question, as Yogiman is, whether these funds are are too conservative for perpetually-lived funds, but that is another issue. With PSU's sometimes reliance on the fund for annual (operating and capital) expenses and its relatively small $3B fund, one would think that they are right to be operating at the lower end of the peer spectrum in terms of risk -- which means a good dollop of low vol/liquid assets (read low-return) to buffer them from the next market crash.

So, I would politely suggest that the back-seat drivers are not fully informed and would best leave the driving to the experts.

 

[Art]

It surely isn’t.

And an even bigger “expense” probably lies within the Investment Council (a seperate entity in addition to the Office of Investment Management folks)....... Wherein folks like Lubert, Hartzler, Gall, Rogers and Hintz salivate.

I'm guessing that the folks on the Council serve voluntarily, or receive nominal compensation, unless their firms get a piece of the action.

But the Office of Investment Management? That many people to run $3bn? You have to be shitting me!

 

[Achowalogan]

FYI, 10-yr returns are beginning 1/1/08 -- well before crisis bottomed. The comparable SPX total return (w/ div) for that period is: 9.6%.

And so, I would repeat the theme of yesterday which is that lower risk gets you lower returns over the long-haul, and that absent data on the specific risks these funds are taking we have insufficient information to say much about how well they are performing.

Now, one could rightly question, as Yogiman is, whether these funds are are too conservative for perpetually-lived funds, but that is another issue. With PSU's sometimes reliance on the fund for annual (operating and capital) expenses and its relatively small $3B fund, one would think that they are right to be operating at the lower end of the peer spectrum in terms of risk -- which means a good dollop of low vol/liquid assets (read low-return) to buffer them from the next market crash.

So, I would politely suggest that the back-seat drivers are not fully informed and would best leave the driving to the experts.

Natlion...."With PSU's sometimes reliance on the fund for annual (operating and capital) expenses"

....You are right on target! Relying on the endowment money to fund excessively priced construction projects given to BOT cronies ie: branch campus dorms at $500,000. per room....

 

[Art]

Natlion...."With PSU's sometimes reliance on the fund for annual (operating and capital) expenses"

....You are right on target! Relying on the endowment money to fund excessively priced construction projects given to BOT cronies ie: branch campus dorms at $500,000. per room....

How is extensive is this? One would think that a very large percentage of the endowment is restricted use.

 

[91Joe95]

FYI, 10-yr returns are beginning 1/1/08 -- well before crisis bottomed. The comparable SPX total return (w/ div) for that period is: 9.6%.

And so, I would repeat the theme of yesterday which is that lower risk gets you lower returns over the long-haul, and that absent data on the specific risks these funds are taking we have insufficient information to say much about how well they are performing.

Now, one could rightly question, as Yogiman is, whether these funds are are too conservative for perpetually-lived funds, but that is another issue. With PSU's sometimes reliance on the fund for annual (operating and capital) expenses and its relatively small $3B fund, one would think that they are right to be operating at the lower end of the peer spectrum in terms of risk -- which means a good dollop of low vol/liquid assets (read low-return) to buffer them from the next market crash.

So, I would politely suggest that the back-seat drivers are not fully informed and would best leave the driving to the experts.

Can we get some of the experts to join psu?

 

[Art]

Can we get some of the experts to join psu?

Only those that want to take early retirement.

 

[stormingnorm]

Where can we find the endowment's asset allocation? Is that published?

I don't have the expectation that it is sitting in 100% equities but it would be interesting to look at it.

It’s in the Exec Summary document I posted above (in rather generic terms, as per PSU tradition)

 

[NatLion]

Where can we find the endowment's asset allocation? Is that published?

I don't have the expectation that it is sitting in 100% equities but it would be interesting to look at it.

They are reporting 50% Global Equity, 20% Private Equity, 10% Alts (hedge funds), 12% Global fixed (incl. liquidity); and the remainder in Real (real estate, timber, etc.)

Not sure if those are targets or actual AA, but it sounds like targets today. To get a handle on what they are really doing you need a time series on all their actual allocation percentages -- which is, of course, more information than they disclose.

And another thing, they report a 9% "benchmark" but it not really a benchmark in any meaningful way -- it is a target. A real benchmark would be an index of investible assets weighed by the above ratios. But alas, they don't report that either (and it is difficult or nonsense for the Alts and PE.)

 

[91Joe95]

They are reporting 50% Global Equity, 20% Private Equity, 10% Alts (hedge funds), 12% Global fixed (incl. liquidity); and the remainder in Real (real estate, timber, etc.)

Not sure if those are targets or actual AA, but it sounds like targets today. To get a handle on what they are really doing you need a time series on all their actual allocation percentages -- which is, of course, more information than they disclose.

And another thing, they report a 9% "benchmark" but it not really a benchmark in any meaningful way -- it is a target. A real benchmark would be an index of investible assets weighed by the above ratios. But alas, they don't report that either (and it is difficult or nonsense for the Alts and PE.)

So, they either underperformed relative to their peers, or they can't properly determine how their peers are doing. Well I for one am filled with unbridled optimism.

 

[NatLion]

So, they either underperformed relative to their peers, or they can't properly determine how their peers are doing. Well I for one am filled with unbridled optimism.

Joe: We in the peanut gallery do not have enough information to tell if they underperformed or outperformed their peers and only know that they are in the ballpark -- that's the whole point. Nobody said anything about what they know, but I am sure that they and their pension/endowment consultants have their performance sliced and diced vs. peers, vs. risk exposures, vs. benchmarks, and vs. outside asset class managers. They surely can and do know what peers are doing.

 

[91Joe95]

Joe: We in the peanut gallery do not have enough information to tell if they underperformed or outperformed their peers and only know that they are in the ballpark -- that's the whole point. Nobody said anything about what they know, but I am sure that they and their pension/endowment consultants have their performance sliced and diced vs. peers, vs. risk exposures, vs. benchmarks, and vs. outside asset class managers. They surely can and do know what peers are doing.

Unbridled optimism.

 

[NatLion]

Unbridled optimism.

There is no optimism, they could be doing well, they could be doing badly, but from what we know we just cannot judge and there is no a priori evidence that they are doing good or bad.

The AR puts them in the ballpark where we need to know the risk to say more. Show me the alphas, betas and tracking error and I could give you an answer. I do get the feeling that a lot of folks think they are too conservative but the current asset allocation indicates otherwise (although even that tentative judgment on my part is not definitive w/o more information).

 

[Art]

Joe: We in the peanut gallery do not have enough information to tell if they underperformed or outperformed their peers and only know that they are in the ballpark -- that's the whole point. Nobody said anything about what they know, but I am sure that they and their pension/endowment consultants have their performance sliced and diced vs. peers, vs. risk exposures, vs. benchmarks, and vs. outside asset class managers. They surely can and do know what peers are doing.

Their "peers" suck so this discussion is about comparative suckage.

 

[BobPSU92]

How much of the endowment is allocated to onion dip? How does it compare to our peers?

 

[NatLion]

How much of the endowment is allocated to onion dip? How does it compare to our peers?

Depends on whether the onion dip manager produced any excess return over the onion dip index and how closely the onion dip index was correlated with other market exposures in the portfolio - all relative to peers. Outrageous, I know...

 

[BobPSU92]

Depends on whether the onion dip manager produced any excess return over the onion dip index and how closely the onion dip index was correlated with other market exposures in the portfolio - all relative to peers. Outrageous, I know...

 

[Art]

How much of the endowment is allocated to onion dip? How does it compare to our peers?

Difficult to say. Someone ate all of the evidence.

 

[DimWillHunting]

The investment portfolio for Penn State University’s endowment returned 7.8% for fiscal year 2018, missing its benchmark of 9.0%, and falling below the 8.3% median return of universities as measured by Cambridge Associates. Last year, the endowment returned 12.6%.

The performance is among the lowest reported by other major public universities so far this year. For example, University of Virginia, University of Texas, Michigan State, and University of California reported returns of 11.4%, 11.27%, 11.1%, and 8.9% this year, respectively.

https://www.ai-cio.com/news/penn-state-endowment-returns-7-8-2018/

Are you by chance a Ron Bennington fan? Question is based on your handle.