Investment Performance
The Investment Office strives to meet three performance objectives. First and foremost, we seek to preserve the long-term value of the endowment. We also strive to add value to both a custom benchmark and a simple 70 percent equity / 30 percent bond portfolio. Finally, we strive to be among the best of our peers and to be thought leaders for the industry.
Primary Investment Objective
The following chart illustrates the University’s actual performance meeting its primary investment objective of realizing a total return exceeding the endowment payout and inflation over a long-term horizon. The University’s investments historically have grown at a rate exceeding this objective. For the three-year period that ended June 30, 2023, the Long-Term Balanced Pool generated an 11.3 percent annualized return net of all internal and external fees and costs, exceeding inflation and University spending by 0.8 percent per year for the period.
Primary Investment Objective:
Annualized Total Return ≥ Spending + Inflation
As of June 30, 2023
| 3-Year | 5-Year | 10-Year | 20-Year | |
|---|---|---|---|---|
| Annual Total Return* as of June 30, 2023 | 11.3% | 7.9% | 8.2% | 9.0% |
| - Spending** as of August 31, 2023 | 4.8% | 5.0% | 5.0% | 4.8% |
| - Inflation as of August 31, 2023 | 5.7% | 4.0% | 2.8% | 2.6% |
| =Above(Below) Objective | 0.8% | -1.1% | 0.4% | 1.6% |
*Total returns are net of fees and are calculated on annual changes in net asset value. They may differ from payout distributions.
**Special payouts for fiscal years 2019, 2018 and 2017 are included. The management and administrative fee is set by the Northwestern Board of Trustees and used to support the University's direct and indirect costs related to gift-funded activities.
Secondary Investment Objective
The secondary investment objective is for endowment returns to exceed both the target composite benchmark and a simple 70 percent equity / 30 percent bond portfolio.
The composite benchmark’s asset class weights and benchmark components are based on the target asset allocation policy. This performance goal is to realize superior gains within each asset class through the selection of superior outside investment managers.
The endowment outperformed the 70 percent equity / 30 percent bond portfolio for all periods. The portfolio outperformed the composite benchmark for the three- and 20-year periods, while it underperformed for the five-year and roughly matched the benchmark for the 10-year period. The overweight to real assets has been a significant detractor to performance of the endowment over both the five- and 10-year timeframes; the office continues to aggressively pursue the reduction of this asset class. The measures taken in fall 2021 to reduce equity risk and increase cash and short-duration fixed income, as well as add to absolute return holdings, helped drive outperformance for the three-year period.
In absolute terms, the last decade has seen very strong annualized performance from private equity, venture capital, and public equity. In relative terms, every asset class has matched or exceeded its benchmark except for public equity and real assets.
Secondary Investment Objective:
Annualized Total Return ≥ Composite Benchmark
As of June 30, 2023
| 3-Year | 5-Year | 10-Year | 20-Year | |
|---|---|---|---|---|
| Northwestern University | 11.3% | 7.9% | 8.2% | 9.0% |
| Composite Benchmark | 10.6% | 8.3% | 8.3% | 8.2% |
| Global 70% Equity / 30% Bond Index | 6.5% | 6.1% | 6.7% | 6.9% |
Tertiary Investment Objective
A third performance objective is realizing investment returns that are competitive with those of our peer institutions. According to an annual comparative study of the returns of colleges and universities by Cambridge Associates, for the period that ended June 30, 2023, Northwestern performed in the top quartile for the 20-year period, in the second quartile for the three-year and 10-year periods, and in the third quartile for the five-year period.
We hope to continue to improve our performance relative to peers to enable Northwestern to lead in spendable resources in a competitive environment.
Northwestern has delivered impressive results over the long term. For the last 20 years, the Long-Term Balanced Pool has earned an annualized net return of 9.0 percent, exceeding the passive global 70 percent equity / 30 percent bond index by 2.1 percent annually and surpassing inflation by 6.4 percent.
Long-Term Balanced Pool: 10-Year Asset Class Annualized Net Performance Relative to Selected Benchmarks
Asset Class Benchmarks
- Public Equity: MSCI ACWI Index / HFRI Equity Hedge (Total) Index
- Private Equity: Cambridge Associates Private Equity Pooled Return
- Venture Capital: Cambridge Associates Venture Capital Pooled Return
- Absolute Return: HFRI Relative Value: Multi-Strategy Index
- Real Assets: Cambridge Associates Real Estate and Natural Resources Blended Pooled Return
- Fixed Income: Barclays US Aggregate Bond Index