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E-PrinceCorrection appended
Revised projections that the University endowment will lose 30 percent of its value by the end of this fiscal year have forced administrators to cut next year’s budget by $88 million, President Tilghman announced in an e-mail ...
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That;s what happens when you INVEST money in something that is not supposed to be a business. My parents didn't invest my college fund, they saved it, because the money that was given to me by grandparents and relatives who care about me over the years was for ME, not to play around with. Alumni donate because they care about their alma mater---why was this money invested so poorly?
The Daily Princetonian has been having some great editorials lately, so I am surprised that they reported this in such a neutral way. Many people w/ comfortable savings invested safely and are NOT losing money in this recession. Why did Princeton gamble away the hard-earned money of loving alumni? I am an econ major, but a senior and too busy to play with the data on the Prince website, but would love if another major, now or after the thesis, could enlighten the community as to what happened.
I agree with '09 to the extent that the university should not have to make these changes but is being forced to because it is facing a huge liquidity crunch, with most of the funds invested in highly illiquid assets, such as forestry, venture capital, LBO funds. That was a fatal error.
However, '09 misses a key point: HYPSM have much longer time horizons than your parents. It doesn't make sense, given that time horizon, for them to invest like '09's parents, as long as they have sufficient liquid holdings.
If these colleges had kept their funds entirely in treasuries there is absolutely no way the endowments would have grown to their current size, nor would they be able to provide the level of financial aid and resources to students that they do now. The problem is a move to the extreme whereby nearly the entirety of princo holdings, much like HYSM's portfolio's, are not in cash or cash-like securities.
Furthermore, I am certain that, even with the current 30% drop, Princeton's endowment has outperformed '09's parents CD's or treasury investments over the last 20 years. The problem is balancing the portfolio's liquidity premium with the need for liquidity, which PRINCO has clearly done a poor job of doing (if it had done a decent job there would be no need for all these cuts).
'09, I certainly hope your parents did invest your college fund. There are plenty of low-risk investment options that do better than a savings account, which often doesn't even keep tabs with inflation.
And I'm certain that had Princeton invested in T-bills from the get go, they'd have far less than they do after years of spectacular growth followed by one of a 30% cut.
Princeton should have had more resources to stem a crunch, since they inevitably happen. But the long-term investment plan has not been a mistake.
And we're doing a lot better than Harvard at the moment.
Oh, and does this 30% figure include the cushion provided by transferring the Robertson Foundation $1B into our general endowment (this is directed to you Daily Princetonian, do some digging!)
See, the dirty little secret is that endowments provide information on how the total size changes which depends on three things:
1) Influx of donations
2) Increase/decrease in value through investment gains (either capital gains, dividend, or interest)
3) Outflows for spending
4) Transfers into the fund through mechanisms other than donations
If I recall, the Robertson Fund agreed to transfer the dollars from a separate fund into the general endowment. So, the question is, once we subtract out the fundraising for the last year, the general budget for the last year, and the Robertson transfer, and compare it to the same for the prior year, how did our investments fare?
I'm surprised none of the school newspapers have investigated this, especially since I know the Prince is rife with economic policy wonks
It is comforting that our president says that "We all go to bed each night praying for a miraculous boom...". Just curious as to what causes an atheist to pray?
The problem with out high octane investing style is that it actually makes it very difficult to plan on, as evidenced by our need to make radical cuts in future budgets. And even then we do not know if we have cut enough. I hope all this works out and the endowment returns over a long period of time prove to be both attractive and stable. I suspect we followed the crowd and sought returns to keep up with our Harvard/Yale competition. Is it any accident that our PRINCO chief came from Yale? The Yale model makes sense given our time horizon but it needs to be adjusted in light of market conditions. Our liquidity position should be inversely related to market valuations; when corporate spreads and equity markets are rich, our liquidity should be high. It seems that may not have been the case.
Harvard, Cornell and Dartmouth have offered early retirement packages to employees over 55 and ten years of service. I would hope Princeton would do the same before laying off any staff.
Plus offshore hedge funds. Let's not forget those. In fact, let's all get to see the PRINCO books. Alumni who donate in good faith should demand accountability, and transparency too. We trusted the University to be a good steward, and obviously it has failed in that duty.
Here's my question. What exactly constitutes restricted endowment spending by departments? I heard that it was thesis funding, and expenditures along those lines. Anyone know if this is true?
The question is: could Princeton have maintained its elite status without following the investment strategy of our peers and are the recent losses the price of admission?