University endowments trim holdings in US Treasuries from as much as 30 per cent in 2008-09 to zero in some cases, fearing they could be caught flat-footed by a reversal of the Federal Reserve’s low interest-rate policy
May 9, 2013 Leave a comment
May 8, 2013 7:34 pm
University endowments trim holdings in US Treasuries
By Henny Sender in New York
Some of the smartest money in America is getting out of US government debt. Many university endowments have scaled back their holdings of Treasury securities from as much as 30 per cent in 2008-09 to zero in some cases, say people familiar with their investment strategies. The sell-off reflects a big change in the way fund managers view US government debt. The traditional attraction of Treasuries for US investors was that they were certain to be repaid. But with interest rates at such low levels, investors worry that bond prices could fall dramatically. “Treasuries were a core holding,” said one university fund manager. “Now everyone is holding less than 5 per cent.” The fear on campuses is that universities, which profited in recent years from the rally in Treasury prices, could be caught flat-footed by a reversal of the Federal Reserve’s low interest-rate policy. “If you think you can change allocations quarter by quarter, and you believe rates will be low for longer, and you think you can make a quick switch, then maybe it is OK,” the university fund manager said. “But that isn’t the way we invest. Today government bonds should come with a warning about interest rate risk.” Princeton’s $17bn endowment has converted its Treasury holdings to cash, according to published reports. Duke’s $5.5bn endowment has also shifted from Treasuries to US stocks with high dividends and emerging market equities, a person familiar with the university fund said. Last week, Cornell’s $5bn endowment decided to reduce its investments in Treasury securities to just over 3 per cent of assets. As of June last year, Yale’s $19bn endowment had only 4 per cent of its holdings in Treasuries. “Yale is not particularly attracted to fixed income assets as they have the lowest expected returns of the seven asset classes that make up the endowment,” the university’s fund said in its annual report. According to one survey of 831 US universities, the average endowment lost 0.3 per cent in the fiscal year ending June 2012, with gains on holdings of government debt offsetting losses elsewhere in their portfolios. By contrast, endowments earned an average return of 19.2 per cent in the year to June 2011.
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