University News

Endowment sees 5.7 percent return on investments

Endowment hits peak of $3.3 billion, but returns fall short of FY14’s amid global market fluctuations

By
Sports Editor
Friday, October 2, 2015

The University’s endowment reached a new high of $3.3 billion in the fiscal year ending June 30, 2015, earning a 5.7 percent return, according to a University press release.

This year’s return falls far short of the 16.1 percent mark the endowment posted last year. But this year was a less profitable one for markets on the whole, as the S&P 500 gained just 7.4 percent over the fiscal year compared to 24.6 percent during the previous 12 months.

The 5.7 percent return compares favorably to the returns of other institutions, ranking in the top 25 percent of schools with endowments of at least $1 billion, according to Cambridge Associates.

“In the context of the global economic volatility, we are pleased with the return,” wrote Jane Dietze, managing director of the Investment Office, in an email to The Herald. “At the same time, we believe we can optimize the portfolio to achieve higher returns with less risk in the future.”

But the Investment Committee is not focused primarily on single-year returns, Dietze wrote. “To meet the goals of the University, a single year’s returns are not particularly relevant. It is more important to focus on five- or even 10-year returns,” she wrote.

Dietze added that the endowment’s returns this year are “relatively better” than those over the past three and five years, which exceeded the mean and median returns for schools with $1 billion endowments but did not make the top quartile.

Despite these positive indicators, the University’s return still trailed those of the other three Ivy League schools to have reported theirs so far.

Yale led the way with an 11.5 percent return, followed by Dartmouth at 8.3 percent. Harvard, which has fallen under scrutiny for low returns despite having the largest endowment of any university, barely edged Brown at 5.8 percent.

Dietze cited endowment size as a significant factor in the differences in the schools’ returns. Brown’s endowment is the smallest in the Ivy League.

“The size of the endowment and the percentage the endowment represents of a University’s operating budget are two key factors that affect the amount of risk and therefore returns,” Dietze wrote. “A larger endowment affords a larger investment and operations team. Moreover, larger endowments can make larger investments, which allows them to negotiate lower fees and better terms.”

The endowment distributed $155 million — $18,000 per student — as part of the operating budget. The Corporation limits the endowment’s contribution to the budget to roughly 5 percent of its value to ensure future growth. This year’s distribution composed 4.7 percent of the endowment’s value.

The outlay makes up 16 percent of the 2016 operating budget. The largest source contributing to the budget is tuition and fees, which composes nearly half. Other major sources include sponsored funding, which encompasses grants from federal agencies and other groups supporting research, and auxiliary services, which are self-supporting University operations such as Residential Life, Dining Services and Health Services. Sponsored funding and auxiliary services account for 12 and 11 percent of the budget, respectively, and fundraising adds another 6 percent.

The endowment’s contribution to the budget goes toward “professorships, more than 60 academic programs and our commitment to meeting the demonstrated need of students on financial aid,” Executive Vice President of Finance and Administration Barbara Chernow ’79 said in the press release.

The fund comprises a wide range of assets: It is 27 percent public equity, 31 percent hedged strategies such as hedge funds, 21 percent private equity, 8 percent real assets, 5 percent fixed-income instruments and 6 percent cash, according to information provided by the Investment Office. Broad ranges for the weights of different asset classes are assigned by the Investment Committee.

Dietze wrote that leveraged buyouts were the fund’s worst performing investments.

“The buyout portion of our private equity portfolio performed below where we would have wanted this year,” she wrote. “We have defined a specific strategy and are actively executing on it to improve the portfolio.”

Dietze said she anticipates few changes in strategy after seeing this year’s returns, noting that the Investment Committee’s evaluation process is always ongoing.

“We continually analyze each asset class within the context of the macroeconomic environment to determine the appropriate investment strategies, allocations and manager selection,” Dietze wrote.

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  • Brown Alum

    When is the BDH going to stop accepting as fact the lame, unsupportable, and disingenuous excuse offered by Brown’s Investment Office that “our endowment doesn’t perform as well as our peers because it’s smaller?” If that excuse bore even a grain of truth, Brown would be consistently outperforming numerous smaller college endowments, such as those of Williams and Amherst, to name but two. It doesn’t. Year after year, Brown’s endowment’s investment performance and its endowment growth rate trails most, if not all, of its Ivy peers, as well as many other elite non-Ivies. Why does the Brown Corporation tolerate such systemic mediocrity that is causing Brown to fall farther and farther behind its peers? Why do the alumni tolerate it? Why has the Brown Annual Fund been stuck in the mud for the last five or six years at $35 million or so and 30,000 – 31,000 donors when peer annual funds are thriving and growing? Why isn’t leadership from the President to the Investment Office being held accountable for such miserable and unacceptable performance? One would think that, since the endowment and annual giving are the essential lifeblood of this university that affords students everything from scholarships, to refurbished dorm rooms and classrooms, to top professors, to athletic facilities, etc., the BDH would do some hard-hitting investigative reporting on these issues instead of just lamely reporting, year after year, the basic stats about endowment performance and annual giving. Memo to the BDH: There’s a big, important story here, and you’re missing it.

  • Brown alum’s analysis is correct. Brown is underperforming as compared to its peers. Not only does Brown have the lowest endowment of the Ivies, but it is also growing it less quickly.
    As an alum who receives constant appeals for funds, why should I give ANY money to Brown? I also graduated from Harvard. Harvard does a much better job managing its money than Brown.
    Brown not only underperforms in its investments. It also charges more tuition than anyone else. It runs a chronic deficit. It has increased its expenses at a rate of 3x inflation over the past 30 years.
    Brown’s failure as a university runs deeper than its inability to handle money…but this unacceptable performance is strong evidence that Brown’s President and board are not up to the task of running a competitive university.
    I pity the students and faculty subjected to the inadequacies of Brown’s administration. I question if any leadership is left in the student and faculty to stand up to such mismanagement of Brown’s brand and resources.

    • Ioce Mede

      Chancellor Tisch is well known as a mediocre CEO. If he hadn’t been running his family company, he would have been fired long ago. It’s just a shame that he runs Brown as if it were his other family company.

  • Flim Flam

    Lowest ranking in the Ivy League. Lowest endowment returns in the Ivy League. Lowest endowment in the Ivy League. Lowest salaries among Ivy League graduates. High rape rates. Football team members focussed on rapes instead of football. High Provost turnovers. Oh but Brown President Chris Paxson is stellar….just stellar. Why? Um…dunno….someone said so.