Return higher than reported

Revised figures from the Princeton University Investment Company (PRINCO) show that the University's endowment grew to about $11.2 billion at the end of the last fiscal year, some $200 million more than previously estimated.

Investment returns for the 2004-05 fiscal year were 17.0 percent, contrary to figures previously reported in The Daily Princetonian. Returns are up from last year's performance of 16.8 percent and the 10-year average of 15.6 percent, according to preliminary figures provided by PRINCO president Andrew Golden.

Actual endowment growth was 13.1 percent. That differs from the returns figure because some endowment funds are used to cover expenditures in the University budget.

"The bulk of that discrepancy [between investment returns and overall endowment growth] was that spending was greater than gifts into the endowment," Golden said.

Though the University outperformed the 11.9 percent median return of U.S. endowments by more than 5 percent — putting it comfortably in the top quartile of endowments nationwide — it fell just short of the top decile, which stood at 17.6 percent, Golden said, quoting figures from Cambridge Associates LLC.

Harvard's return on investment for the past fiscal year was 19.2 percent, bringing its total endowment value to over $25 billion for the first time. Yale's investment returns were 22.3 percent, allowing its endowment to cross the $15 billion mark.

"In most environments, [schools with bigger endowments] do better, including some of our closest peers," Golden said, noting that such schools can usually afford their own investment staffs to oversee the activities of financial services companies that manage the endowment on a day-today basis.

Though the overall size of the University's endowment is smaller than those of Harvard and Yale, Princeton's endowment value per student is slightly higher than those of its peers, Golden said.

He cautioned, however, that direct comparisons between schools' endowments are not generally useful. "This isn't a football game where there's a winner and a loser," Golden said. "This is a market where we can all do well and support our institutions."

Over the past 10 years, Princeton's returns have averaged 15.6 percent, while the median figure for all endowments was 10.2 percent. The University's 10-year performance exceeded both that of the top quartile at 11.8 percent and the top decile at 13.9 percent.

Golden estimates that had the University achieved only the median growth over the past decade, Princeton's endowment would be about $5 billion smaller than it is today.

But such high returns are likely unsustainable in the long term, Golden said. He placed PRINCO's investment returns goal at 10 percent annually, assuming inflationary growth and stable spending.

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"We want to spend as much of the endowment as possible, subject to two constraints — preserving purchasing power into perpetuity and assuring that the spending stream is relatively stable," Golden said. "Your great-grandchildren need to get the same economic benefit that you're getting now."

In the near term, Golden warned, the endowment may not be able to match its performance of recent years.

"We're pretty much pessimistic about everything right now," he said. "It seems like it's a greater challenge now to find things that offer great value."