Endowment returns 5.6 percent

Since the University closed its books for the past fiscal year at the end of June, however, the endowment has shrunk as a result of what Golden called “unusually volatile” markets. He declined to give an updated figure.

Though the return represents a marked decrease from the 2006-07 fiscal year’s 24.7 percent return, Golden said it has been a “very solid year,” noting that “marketable investments … generally suffered losses.”

He added, however, that the endowment’s market investments outperformed PRINCO’s benchmark figures by 2.6 percent. PRINCO uses a basket of indices as its benchmark, including the Wilshire 5000, which was down by 12.5 percent in the 2007-08 fiscal year, Golden said.

The endowment’s comparatively strong return was buoyed by PRINCO’s non-marketable holdings, which include investments in private equity, Golden explained.

Despite the recent economic turmoil, Golden said that PRINCO’s strategy is largely sound and that no substantial changes have been made to its holdings.

“We’re looking through at every level to think through how we might adjust the portfolio, but ... those are incremental, not significant, changes,” he explained. “Our philosophy has always been to build an investment program that understood that there would be a variety of investment environments that we would encounter.”

Around the Ivies

Ivy League schools and other comparable institutions have seen their endowment returns hit hard in the wake of economic troubles that have caused markets to tumble. Harvard saw its 23 percent return last year drop to an 8.6 percent return this year, bringing its endowment to $36.9 billion. Likewise, Yale’s endowment returns suffered a fall from a record 28 percent to just 4.5 percent this year, increasing its endowment to $22.9 billion. Stanford posted a 6.2 percent return, down from 23 percent the previous year. The California school’s endowment stood at $17.2 billion this year.

Dartmouth’s endowment returned .5 percent, down from 21.5 percent the year before, but its value fell by $100 million to $3.6 billion as a result of additional institutional spending.

Penn was the only Ivy to post a loss for the year, with a 3.9 percent, $300 million decrease to $6.3 billion. It posted a 20.2 percent return last year.

Columbia has not yet released statistics for the year.

Princeton’s endowment remains the fourth largest in the United States, behind those of Harvard, Yale and Stanford. Last year Princeton overtook the University of Texas system, whose endowment was valued at $15.6 billion a year ago.

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Beating the benchmark

The University and most of its Ivy League peers have far outpaced general trends. According to a study by the Trust Universe Comparison Service, which compiles market benchmarks, the median return for 165 institutional funds over the last year was down by 4.4 percent. The Dow, NASDAQ and the S&P 500 all posted net decreases in the low double-digits.

In recent years, the University’s endowment has either matched or outpaced general market growth. In the 2006-07 fiscal year, the endowment’s 24.7 percent growth to $15.8 billion matched the low-20-percent increases of the three main market indices.

Likewise, in the 2005-06 fiscal year, the 19.5 percent endowment growth outperformed the market indices’ low-single-digits growth.

Since 1997, the University’s endowment has more than tripled, from around $5 billion to $16.4 billion today.

Sharing the wealth

Endowment returns are coming under considerable scrutiny, as lawmakers in Washington, D.C., pay increasing attention to the wealth of America’s richest universities. Earlier this month, Rep. Peter Welch (D-Vt.) announced that he would introduce a bill in Congress that would require educational institutions to, over a given period of time, spend at least 5 percent of their endowments.

The University currently has a target spending range of 4 to 5.75 percent of its endowment. In 2007, the University spent about 4.6 percent of its endowment, according to a letter that the University sent to the Senate Finance Committee in March. Spending from the endowment covers roughly 40 percent of all University expenditures.

In an interview with the ‘Prince’ following Welch’s announcement of his legislative agenda, President Tilghman said that she would fight any such spending rules.

“It’s almost certain that in the next year ... I will be in Washington trying to talk not just to Congressman Welch but to members of the N.J. delegation and any other members of the Congress who are in a position to influence how this comes out,” she said.

Golden also said he opposed the spending rule.

“If anything, [the current market conditions] corroborate how there should be flexibility given to institutions to figure out their own budgets,” he said. “One has to judge the reasonableness of spending over the very long horizon, not over one year or three years or even 10 years.”

“Endowments are meant to be forever,” he added.