University endowment increases, ranks fourth largest in country

The results for fiscal 1997 are in, and the University's endowment ranks fourth among U.S. colleges and universities. The net endowment, which includes gifts, dividends and interest from investments, now totals almost $5 billion – a 10.6-percent increase over last year.

A bullish stock market helped dramatically increase investment returns for the majority of higher education institutions across the nation, which pushed the total net value of American endowments to more than $150 billion – a 21.9-percent increase over last fiscal year – according to a survey released last week by the National Association of College and University Business Officers.

The U.S. stock market is much more volatile this year, however, according to a Feb. 20 article in the Chronicle of Higher Education. In October, the Dow Jones industrial average dropped more than 554 points in one day, its largest single-day plummet ever.

While the market has recovered – and recently hit new highs – investors are concerned about the financial crisis in Southeast Asia. Analysts believe that fiscal 1998 may not produce the same results as fiscal 1997, according to the article.

The average college endowment earned a total return of 20.4 percent, up from 17.2 percent last year and the highest since 1986 when the average was 26.9 percent. According to the survey, the returns for fiscal 1997 ranged among universities – from a low of 6.8 percent to a high of 46.9 percent.

Misleading numbers

Compared to several financial benchmarks, the returns of the 429 American universities and colleges measured in the survey were above average. Overall, the net investment return was 34.7 percent above Standard & Poor's 500 index. But numbers may be misleading.

"You need to be careful with the numbers," Vice President for Finance and Administration Richard Spies GS '72 said. "The $5 billion includes things that are not necessarily in the endowment, such as funds that are being invested. Sometimes it's like comparing apples and oranges."

Spies explained that all universities use different criteria for defining their endowments. Funds that have been earmarked to pay expenses or are currently tied up in investments may or may not be counted in each institution's estimates.

'Highly-concentrated' funds

The NACUBO survey acknowledged that the endowment wealth is "highly concentrated." More than 70 percent of the endowment assets measured in the study are held by only 79 institutions. Additionally, the 25 institutions with endowments above $1 billion hold nearly half the endowment assets.

"The concentration of funds is factual, but it is affected by history and the decisions that institutions make," Spies said. "The endowment enables Princeton – and places like Princeton – to offer expensive, but hopefully high-quality, education."

While Spies said financial resources are not the only factor in guaranteeing a good education, he said he realizes that high-quality educations are inevitably tied to economic concerns.