The State of Yeshiva University's Endowment
The National Association of College and University Business Officers (NACUBO) recently released its annual survey of university endowments. While the average endowment saw an increase of about 15% through the fiscal year of 2013, the value of Yeshiva University's endowment fell by $90 million, or about 7.6%, to $1.09 billion from about $1.18 billion. YU was the only university with an endowment exceeding $1 billion, and one of only 11 universities nationally, to see a net decrease in endowment market value. Since President Joel took office in 2003, the endowment has increased about 20% or approximately $165 million. Matt Yaniv, Director of Public Relations for the University explained this decline by saying that "a significant portion of the long term investment pool was transferred back into the university, as intended."
Regarding the current situation, Yaniv told The Commentator that "Yeshiva University’s long-term investment pool realized double digit gains in fiscal year 2014 and its endowment remains strong," although declined to specify the exact figure. Using data from the National Center for Educational Statistics, 15 schools qualify as part of the university's "peer group," a benchmark used by the Department of Education among other groups to track certain metrics. The average endowment performance of those universities, including NYU and Columbia, was 14.55%. Yaniv declined to say if the YU endowment underperformed or outperformed that benchmark.
Yaniv went on to say that "the net decline in endowment assets reported in the National Association of College and University Business Officers survey is attributable to the transfer of funds out of the University’s long-term investment pool." Regarding management of the endowment, Yaniv said "YU continues to balance support of current needs while maintaining substantial resources for the future."
Where will these resources come from? According to information from the University’s most recent financial statements, dated June 30, 2013, it seems likely that the university will have to seek sources of revenue other than the endowment. About 37% of YU’s endowment is “temporarily restricted” and transitions to “unrestricted” after passage of an amount of time. The majority of the endowment, about 59%, is classified as “permanently restricted,” or only available with permission of the donor. The university can only use the interest from the restricted funds but not the principal.
Only about 8% of the total endowment balance is classified as “unrestricted,” or available to be withdrawn at any time. When asked how the university would respond if it encountered further financial troubles and the unrestricted portion of the endowment was not replenished, Yaniv declined to comment.
Yaniv also declined to discuss management fees associated with the endowment and the University's long-term investment pool. Given the University’s lack of transparency, it is prudent to evaluate what may lie beneath the surface.
The California Public Employees Retirement System (CalPERS), the world’s largest pension fund, is known to sway markets and represent current trends due to its size and influence. Relevant to this analysis, CalPERS announced last year that it would withdraw over $4 billion from about 30 hedge funds. CalPERS cited the high cost and comparatively low return as the driving cause. CalPERS paid about $135 million in fees last year for a 7.1% overall return. Indeed, the 2014 overall return of the hedge fund asset class was about 4%. The far less risky S&P 500 index returned a little less than 15%.
As reported over the summer by The Jewish Channel, Yeshiva University has suffered from an over-reliance on hedge funds. Substantial portions of the University’s long-term investments are “alternative investments,” primarily hedge funds. If the University’s hedge fund investments are anything like those of CalPERS, or the asset class a whole, it may explain the endowment's underperformance. The University’s spending on hedge fund management fees may also be part of the overall trend of bloat and reckless spending that has recently plagued the university.