MIT’s Investment Returns Outpace Even Yale’s

It’s official: The Massachusetts Institute of Technology lays claim to the highest return on its investments of any college in America. Proud men and women wearing pocket protectors and bragging to their friends at Dungeons & Dragons games about their alma mater’s finances could be a not-too-uncommon sight.MIT reported a 23% rate of return on its investments under the stewardship of Seth Alexander, who left Yale University’s envied investment office after 10 years last spring.Yale’s chief investment officer, David Swensen, previously reigned supreme in the world of academic endowments, producing a 22.9% rate of return on the school’s investments this year and a 17.6% average return rate over the past 11 years.Mr. Alexander’s performance lifts MIT securely out of the financial rut it fell into between 2000 and 2004. The decreases in the university endowment during those years, which the president at the time, Charles Vest, attributed to a “weak economy,” caused Mr. Vest to impose a hiring freeze and cut the school’s operating costs by $34 million.Spokesmen for the school, though, attributed its financial troubles to the weak performance of endowment investments. “Three years of poor investment returns have taken their toll. MIT’s endowment, worth $6.5 billion in 2000, dropped 17% in two years,” the university said in a statement in 2003.Mr. Alexander’s performance is a step in the right direction. Having increased the university’s endowment to $8.4 billion in 2006 from $6.7 billion in 2005, MIT maintained its position as the country’s sixth richest university. Harvard University holds the premier spot as America’s wealthiest school, with investments valued at $29.2 billion.MIT’s turnaround is a testament to the belief that one year’s figures say little about the success of future investments. But if Mr. Alexander learned anything from his time with Yale’s Mr. Swensen, MIT may be on secure financial footing for a long time. Mr. Alexander is not the first to leave New Haven for a peer institution; he follows in the footsteps of Andrew Golden, who left the Yale Investments Office in 1993 and in 1995 became Princeton University’s chief investment manager.Mr. Swensen, who teaches both undergraduates and business school students at Yale, has been managing Yale’s investments since 1985. During his 21 years there, the university’s endowment rose to $18 billion from $1.3 billion in 1985.In the process, he has regularly outperformed his peers at other universities and, in doing so, has become a legendary figure in the investment world — not the least of which because he has forgone exorbitant Wall Street salaries for the $1 million he makes annually at Yale.Mr. Swensen attributes his success to what he calls an unorthodox approach to investment. When he came to Yale, “No institutions were managing money in accordance to what finance theory would tell us,” Mr. Swensen told Marc Gunther in the Yale Alumni Magazine. “It just wasn’t done.”Mr. Swensen said his success is based partly on diversifying the university’s investments. According to Mr. Gunther, Mr. Swensen began investing in varied public companies, newly privatized firms, and hedge funds. And he began hiring asset managers who specialize in particular markets, like real estate. Yale President Richard Levin said in a statement that Mr. Swensen’s performance has made him “peerless.”That is, until MIT’s results eclipsed Yale’s. But the folks in New Haven are not alarmed. “Now we know our returns aren’t a miracle and that we could reproduce them in the future,” the university’s deputy provost, Charles Long, recently told the Yale Daily News.

MIT’s Investment Returns Outpace Even Yale’s

MIT’s Investment Returns Outpace Even Yale’s

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