Markets, restructuring lift endowment to new high in FY 2021
By James Dean
Robust markets and a multiyear effort by the university to restructure and diversify investments helped Cornell’s endowment rebound from pandemic challenges and post its best return in decades for the fiscal year ending June 30, 2021.
The 41.9% investment return represented the largest single-year gain in more than 35 years, well above the benchmark return of 26.9 percent, according to the Office of University Investments. The $3 billion gain pushed the university's long-term investments, consisting mainly of the university endowment, to a record high total of $10 billion.
The 41.9% FY 2021 investment return came just a year after a 1.9% return in FY 2020, a year marked by high volatility triggered by the pandemic’s onset. Over the past five years, Cornell’s endowment has achieved a 13.6% annualized return, substantially exceeding Cornell’s broad markets-based benchmarks.
One-year investment gains like that seen in FY 2021 are rare, and markets tend to average out over time, said Chief Investment Officer Kenneth Miranda.
“It was an extraordinary year, partly because of a unique constellation of events,” said Miranda, citing the recovery of many markets from pandemic lows, bolstered by temporary U.S. monetary and fiscal policy. “We have a multiyear, almost infinite time horizon, and this money must be stewarded over generations of Cornell students, faculty, staff and research goals, through bull markets and bear markets.”
Cornell’s endowment comprises more than 8,000 accounts, the vast majority of which are legally restricted by donors for specific purposes for the lifetime of the university. Endowments are permanently invested capital creating a perpetual, self-sustaining source of support for faculty, research, student programs, financial aid, athletics and many other programs.
Each year, a portion of endowment earnings are tapped to support the university’s operating budget, distributed between financial aid, professorships, academic programs, research and other specific programs. New York state law caps endowment spending at 7% percent to ensure institutions manage these funds wisely. Cornell’s annual distribution is approximately 5% of earnings. Last year, the endowment made an additional, one-time distribution of $15 million to help the university manage pandemic expenses.
The endowment’s exceptional FY 2021 return was achieved with six of the eight asset classes in its strategic allocation outperforming their benchmarks, Miranda said, in some cases by substantial margins – by more than 10 percentage points in three classes.
In addition to robust market conditions over the last year, the endowment benefited from Miranda’s five-year effort to restructure asset classes, reduce fees, enhance liquidity and portfolio diversification, and implement rigorous risk monitoring and rebalancing frameworks. The systematic restructuring included moving the Office of University Investments to New York City to tap into a larger pool of potential staff members and be closer to the world capital markets.
Miranda said that initiative, now largely complete, has positioned the office well for the long term and played an important role in last year’s exceptional performance.
“We’re beginning to very clearly see the fruits of those efforts,” Miranda said. “We’ve got a lot more flexibility, we’ve gotten our cost structure down, controlled unfunded commitments and revamped our manager lineup. The portfolio is in a good place.”
Looking ahead, Miranda anticipates an increasingly challenging environment with many markets at historic highs and uncertainty around the unwinding of pandemic monetary and fiscal stimulus policies, plus the potential for sustained inflation and continued low interest rates.
But Miranda said his office would apply the same philosophy to growing the university’s endowment: “Sound principles consistently applied,” he said, “result in a portfolio that over time generates strong returns.”