Salient to Investors:

The 2008 financial crisis cost US endowments 23 percent of their value on average in F2009. Commonfund and NACUBO said fund values fell 0.8 percent in the year ended in June 2012, and gained 18 percent a year earlier.

Nick Cavalla at Cambridge University said US colleges, including Harvard, Princeton and Stanford, were heavily invested in illiquid assets such as private equity and ran low on cash during the credit crunch – they are in extreme positions.

Cavalla said only 1.7 percent of Cambridge’s fund is in private equity, which can have high fees and erratic returns, and 6.3 percent is in other illiquid investments – Yale has 34 percent in private equity.

John Griswold at the Commonfund Institute said the endowment model has been one of the most successful long-term portfolio strategies ever invented, so it’s unfair to pick a 2 or 3-yr time series and say it doesn’t work, and if universities invested in private equity and other illiquid assets can withstand events like the financial crisis, the strategy will pay off in the long run.

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