Qubit: Wesleyan Endowment Returns 2022
Wesleyan's endowment returned -4.6% for FY 2022.
The 1-year return for the private equity portfolio is 6.9% and the 10-year return is 22.0%.
During the past 10 years the endowment paid out $377 million to the school but it also generated $1.1 billion in investment gain.
Finally, the endowment at $1.6 billion is three times the size of $513 million when CIO Anne Martin took over in 2010.
Curiously, the investment team pored through old reports and discovered that the school not only spent more than its peers but also underperformed because it had no exposure to venture capital in the late 90s. Even after the dotcom bust the gains made leading up to it more than offset the losses. Fortunately, Wesleyan began investing in venture in 2011 and did not miss out on the last decade’s performance.
“The endowment’s -4.6% return underperformed both its policy benchmark (a composite of benchmarks weighted in proportion to a policy asset allocation) and the Higher Education Price Index (HEPI) inflation plus our spending payout. The return slightly lagged the top quartile of preliminary returns from peer institutions. However, our three-, five-, and 10-year results remain strong versus all benchmarks. The endowment has performed particularly well compared to peer colleges and universities, generating roughly $430 million in incremental value versus the median peer return over the past 12 years.”
“The past 10 years have provided a Goldilocks period for investors, with even passive portfolios turning in unusually strong returns. Our investments added value relative to benchmarks from every asset class. During this period, Wesleyan achieved an investment gain of over $1.1 billion, which more than offset $377.3 million of cumulative spending payouts and contributed to the restoration of endowment purchasing power lost during the global financial crisis.”
“From an investment strategy and returns standpoint, however, that period stands out for Wesleyan’s lack of exposure to venture capital, which created an almost insurmountable gap between Wesleyan and its peers who had entered this asset class in the 1970s and 1980s. Peers with venture capital portfolios had returns in the 40% to 50% range in 2000, while Wesleyan saw returns of 12.4%. While those peers suffered in the subsequent ‘bust’ of the 2000s, the gains made in the decade leading up to the correction more than offset those losses. With no exposure to venture, Wesleyan missed the extraordinary returns of 1999 and 2000, but still experienced painful losses as both public and private markets corrected in the early 2000s.
Although we recognize that innovation cycles appear infrequently, maintaining exposure to venture capital appears to pay off over the very long term. The returns of a single vintage year have the potential to drive returns for an entire decade. Our takeaway is that it is important to remain invested in ‘risky’ asset classes, as they are the strong drivers of returns over very long time horizons.
The last decade in venture has mirrored the late 1990s in terms of massive innovation and strong returns. Unlike the late 1990s, Wesleyan participated in the recent cycle of strong venture returns through a portfolio it began building in 2011. However, we are also likely to experience a meaningful correction over the next few years as valuations fall back to Earth and nascent start-ups fail. The current market reflects similarities to the 2000 to 2003 bear market, characterized by technology company valuations plummeting. Multiples for high growth companies—both public and private—have taken a strong beating since January 2022.”
Source:
Wesleyan University, Investments Office - Year End Letter 2022
Tweets and Posts:
Qubits are insights that we find and share with you.