Measuring the Ivy 2018: A good year for returns, but is efficiency becoming an issue?

Summary

• The Ivies continued the strong results of FY 2017, with all but Columbia registering double-digit returns in FY 2018 and all beating a 60-40 portfolio.
• The rankings across Ivies for FY 2018 are very similar to those of FY 2017, with Columbia being the notable exception.
• Columbia’s 9% return was rather unexpected given its apparent asset class exposure. Part of this may have to do with its 2016 change in management.
• Harvard still ranks among the low performers in the Ivy League.
• Exposure to illiquid investments remains high, and for some Ivies it appears to increase.
• Private equity markets rallied strongly over the last fiscal year, beating public equity markets in a reversal of FY 2017 performance. In fact, private equity and venture capital exposure were among the biggest contributors to returns across most Ivies, as we recently projected.
• It is the first time in the 20 years of available Ivy endowment returns data that a 60-40 portfolio outpaces all Ivies in terms of 10-year performance. For 15- and 20-year performance, the Ivies still appear to have an edge on the 60-40 portfolio.
• Estimated Ivy endowment risks, however, remain significantly higher than a 60-40 portfolio, primarily driven by real estate and private equity.
• And none of the Ivies appears to be as efficient as a 60-40 portfolio over the last 10 years, as measured by Sharpe ratio.

Similar to 2017 performance, this past fiscal year was a strong one for most Ivy League endowments. All of the Ivies beat a 60-40 portfolio, a commonly cited¹ benchmark. For the majority of these endowment systems, exposure to private equity and venture capital appeared to be the dominant driver of returns, based on our proprietary returns-based analysis. 2018 is noteworthy, however, as it is the first year that long horizon (10-year) returns from all Ivy endowments² lagged behind the 60-40 benchmark.  The Ivies also appear to have significantly higher levels of volatility over the 10-year period  than those of a 60-40 portfolio. Both of these issues cast doubt on the efficiency of the Ivy endowment model over the long-term.