Fiscal Year 2011 sees 22 percent return

The University’s endowment posted a 21.9 percent return on investments for the fiscal year ending Jun. 30, 2011 — raising the total endowment figure to $17.1 billion from last year’s $14.4 billion total.

“It exceeds expectations,” said Andrew Golden, President of Princeton University Investment Company. “It is fairly unusual to produce a nearly 22 percent growth rate,” he said, adding, “We’re always trying to focus more on the long term rather than year-to-year returns.”

The short term has proven to be a very volatile time for the University’s endowment, with fiscal year 2010 growth being 14.7 percent, following the fiscal year loss of 23.7 percent, which occurred during the height of the recent recession. The average annual return on the endowment over the past 10 years has been 9.8 percent, which is in the top percentile of 401 institutions reporting to the Trust Universe Comparison Service.

“The continuing strong performance of the endowment allows the University to sustain its signature commitments to world-class teaching and research and to an unsurpassed financial aid program that ensures all admitted students can afford a Princeton education,” Princeton University Provost Christopher Eisgruber said in a University statement.

This comes after the University put in place a cost-savings plan that included a reduction of spending of $170 million over the past two years, amounting to an average of 7.5 percent cut from all academic departments’ budgets, in an effort to combat losses taken during the recent economic downturn.

“My sense is that as painful as those cuts were, the University is in a better place for having made them,” Golden said. “Just because our value is back, it remains true that we have to remain thoughtful of budgetary issues.”

Eisgruber explained that the University currently has a spending policy that aims for spending between 4 percent and 5.75 percent of the market value of the endowment. In fiscal year 2011 the spend rate was 5.1 percent. The June 30 favorable returns have reduced the spend rate for the current fiscal year, 2012, to 4.4 percent.

Peer institutions, however, posted similar gains, with Harvard announcing a 21.4 percent rate of return that brought its total endowment up to $32 billion, and Yale posting a 21.9 percent growth with a $19.4 billion endowment. MIT reported a more sluggish growth number of 17.9 percent, while Stanford posted a stronger 22.4 percent growth return.

Twenty-five years ago, the University had the world’s second-highest endowment, holding more than a $200 million edge over Yale. It has since slipped to third among U.S. universities but still maintains the highest per-student endowment numbers, according to fiscal year 2010 data from the National Association of College and University Business Officers.

“We’re certainly aware of them, but, again, the emphasis is not on any one year,” Golden said when asked about the effects peer growth rates have on the University’s decision-making.

“We’re always asking ourselves and asking each other, ‘Is there something we can learn from each other?’ ” he added. “But, in the end, you have to run your own race.”

Golden noted that, while alumni contributions have been affected by the slow performance of the economy, he didn’t anticipate it affecting their long-term endowment strategy.

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In addition to its Annual Giving program, whose contributions are primarily consumed the year they’re made, the University is nearing the end of its ambitious five-year Aspire capital campaign, whose goal is to raise $1.75 billion by June 2012. The fund has so far raised over $1.5 billion as of Sept. 20.

“We’re in the final year of the campaign, so we’re hoping and expecting some inflows,” Golden noted. “But, frankly, a lot of the major capital gifts are more about things that involve building rather than financial assets.”

Of the University’s endowment investments, every equity asset category had double-digit returns over the past year. “Everything did great,” Golden said. “We had three different categories with returns above 30 percent,” adding, “emerging markets led the way with an almost 35 percent return.”

PRINCO is set to certify the results at its directors’ meeting on Oct. 20, 2011.