An Update on Princeton’s Endowment Performance

Colleges and Universities A-Z Princeton University
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<p>Continuing a discussion begun here:</p>

<p><a href="http://talk.collegeconfidential.com/princeton-university/572837-princeton-endowment-rises-17-billion-dollars.html%5B/url%5D"&gt;http://talk.collegeconfidential.com/princeton-university/572837-princeton-endowment-rises-17-billion-dollars.html&lt;/a&gt;&lt;/p>

<p>President Tilghman has just released more detailed information on Princeton’s endowment performance. As expected, there have been significant declines. Also, as expected, those declines appear to be smaller than those at some peer schools. Over the first four months of this fiscal year (which began on July 1, 2008) Princeton’s endowment lost 11%. This is an estimate of total endowment loss, not just the decline in the marketable securities portion of the endowment and it would have brought the total endowment down from about $16.4 billion to $14.6 billion. Even though the 11% figure includes an estimate of losses in illiquid investments, it probably understates those losses as reporting on private equity values always lags. This is true for all other schools as well. Ironically, the resolution of the Robertson lawsuit has meant that the Robertson endowment has now been turned over to Princeton, adding another $700 million or so and probably bringing the total endowment back up to about $15.3 billion before taking into account the significant losses that have occurred since October 31st. For planning purposes, Princeton is estimating a total drop of about 25% by the end of this fiscal year.</p>

<p>Princeton</a> University - Tilghman details impact of economic downturn
Princeton</a> University - Tilghman letter on Princeton's response to the economic downturn</p>

<p>There are no exactly comparable figures for the other three of the four largest university endowments, those of Harvard, Yale and Stanford. Harvard reported a decline of 22% over the same period but that was limited to just the decline in the marketable securities (mostly publicly traded stocks and bonds) and did not account for the significant losses in the rest of the endowment. Most observers are now betting that Harvard’s true losses at that time were between 30% and 40% and some have estimated they may now be as high as 50%. Officially, Harvard is stating that it is planning for a 30% decline by the end of this fiscal year but attempts to sell private equity at bargain basement prices suggests that the losses will be much deeper. </p>

<p>The</a> Harvard Crimson :: News :: Harvard Endowment Fell 22 Percent in Four Months
The</a> Harvard Crimson :: News :: Yale Loses a Quarter of its Endowment
Financial</a> missteps at Harvard likely could have been avoided | HeraldTribune.com | Southwest Florida's Information Leader</p>

<p>Yale reported a loss of 13.4% over the same period but, again, that was limited to marketable securities. Yale officials estimated that the total loss in the endowment including the non-marketable securities portion through the middle of December was about 25%. It too has probably declined even more since then and will certainly be even worse by the end of the fiscal year.</p>

<p>Budget</a> Letter From Yale President
Yale</a> Daily News - ENDOWMENT FALLS 25 PERCENT</p>

<p>Stanford has reported no numbers for the losses it has sustained but based on the actions it is taking to cut spending and on an analysis of its endowment assets, it’s losses are probably somewhere between Harvard’s and Yale’s.</p>

<p>The</a> Stanford Daily - Endowment Losses and Cutbacks</p>

<p>A good analysis of all of these large endowments and the losses they’ve recently suffered can be found here:</p>

<p>Crash</a> Course - Barrons.com </p>

<p>Princeton was apparently a little faster to act last spring when the early signs of trouble began to appear and it started unwinding some of its more vulnerable investments before similar actions were taken by Yale and Harvard. </p>

<p>While Princeton may have done much better than its peers, this is no time for gloating. All of these schools (and most others around the country) will have to make significant cutbacks. At Princeton, those cutbacks will just be a little less severe. All of the schools will maintain their commitment to financial aid. In terms of faculty hiring, Harvard has frozen all hiring while Yale and Princeton have announced that they will continue to hire new faculty members but each new position will invite greater scrutiny. All of the schools will slow spending on new construction projects. Princeton will even increase graduate student stipends by 3% and will continue to offer raises to existing employees (though the raises will be capped at $2,000.00 per year). Finally, in relatively good news for students, tuition increases next year will be 2.9%, the lowest since 1966.</p>

<p>Interestingly, there may be terrific opportunities for new investments at the present time. A number of endowment managers believe that reallocation to assets that appear to be significantly undervalued at the present time will mean a very nice rebound from these losses once the economy improves.</p>

<p>Bloomberg.com:</a> Swenson See Investment Opportunities</p>

<p>In summary, this is bad news for Princeton but it could have been much worse. Princeton’s endowment managers are to be congratulated.</p>

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<p>hm, I wonder how the colleges will rank in endowment after this crisis is over.</p>

3

<p>Additional information and comments from Bloomberg.</p>

<p>Bloomberg--Princeton</a> Proposes 2.9% Cost Increase; Ivy Peers May Follow</p>

<p>OneKing, my bet would be that as of next June 30th, Harvard will still have the largest endowment followed by Yale, Stanford and Princeton in that order. If the current results are reflected in 2009 performance, however, all of them will be about the same size probably ranging from around $14 billion up to around $18 billion. I doubt any of them will be above $20 billion. If Harvard's losses are less severe than is rumored, its endowment might reach that level but there is so much uncertainty here that I'm not very confident of any prediction.</p>

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<p>I bet the schools will remain ranked in the same order; I doubt King Crimson will ever be ousted from #1. However, all of the schools are going to get clobbered endowment-wise, and that's hardly good for us as students. :(</p>

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<p>While I agree with you that Harvard is highly likely to have the largest university endowment at the end of this fiscal year, the effects of its losses could be devastating. If the endowment drops down to around $20 billion it will be generating only a little more than half the annual revenue it would have at $36 billion. The loss of roughly $800 million dollars per year in revenue will force Harvard to cut back its current spending in a way that will definitely be noticed. The only alternative would be to increase the percentage of its endowment that it consumes each year from around 5% to close to 10% which would likely mean a net decrease in the size of its endowment the following year as well. All of this is set against a backdrop of rising demand for student aid during a bad economy and severe cutbacks in government research spending and corporate support. Harvard relies a great deal on government research dollars particularly to fund the work at its medical school. I’m an alumnus of Harvard Law and know people there who are already becoming extremely concerned about this. It could absolutely change the character of Harvard. Some point out that it wasn’t long ago that Harvard’s endowment was at the $20 billion dollar level and the school was doing fine. What they forget is that its financial commitments to new programs and research in addition to plant maintenance and salaries have all increased since that time. Today, it would be much harder for Harvard to live on a $20 billion dollar endowment than it was back in 2004 when it first reached that level.</p>