University News

U. receives 12.6 percent investment return

Brown ranks second in the Ivy League for investment returns this fiscal year

Contributing Writer
Thursday, October 3, 2013

The University saw a 12.6 percent return on its endowment over the past fiscal year, a number expected to maintain Brown’s current endowment-centered rankings in the Ivy League.

The endowment is controlled by the Investment Office, which manages the now $2.86 billion long-term pool that consists of endowed funds and current university funds. Current university funds are used for the operating costs of the University and account for approximately 5 percent of the long-term pool, said Beppie Huidekoper, vice president of administration and finances.

The other 95 percent of the pool consists of endowed funds, which are invested to create a stream of funding for future University spending and “maintain or enhance the University’s purchasing power,” according to the Investment Office website.

The 12.6 percent return represents a $324 million growth in the endowment’s market value, said Chief Investment Officer Joseph Dowling. This growth comprised almost 16 percent of the University’s annual budget for fiscal year 2013, amounting to $137 million — $16,000 per student — according to a University press release.

The return represents a change in the endowment’s market value due to an increase or decrease in the value of the fund’s investments and does not reflect withdrawals from or contributions to the fund.

The public equity, equity-like credit, hedged strategies and private equity in which the endowment was invested “outperformed their respective benchmarks in fiscal year 2013,” Dowling said.

The University Resources Committee, chaired by Provost Mark Schlissel P’15, offers a recommendation for the University’s annual budget to President Christina Paxson, who takes her recommendation to the Corporation for approval. The Corporation restricts how much of the endowment can be used based on its market value. The committee may use between 4.5 and 5.5 percent of a three-year average of the endowment’s market value for the annual budget.

The past three years of endowment returns reflect market uncertainty as the economy emerges from the global financial crisis. Fiscal year 2012 yielded a 1 percent return, while fiscal year 2011 yielded an 18.5 percent return, The Herald previously reported.

It is typical to see “short-term volatility from year to year,” Dowling said.

“We punch well ahead of our weight,” he said — though the University’s endowment is the smallest in the Ivy League, it outperforms Cornell’s and Penn’s on a funds per student basis.

Among the Ivies that have published endowment returns for fiscal year 2013, Brown ranks second after Penn, which reported a return of 14.4 percent.

Brown typically sees rates of return similar to those of its peers. At the end of fiscal year 2012, when Brown’s endowment had a return of 1 percent, Penn and Harvard saw 1.6 and -0.05 percent returns, respectively.

Among its peers, Brown receives the largest percentage of its net revenue from tuition, according to a November 2012 presentation by the University Resources Committee.

“We’re a tuition-driven institution,” Paxson said at a faculty meeting Tuesday evening, noting her goal of growing the University’s student body by 1 percent annually can increase revenue streams.

The University increased its tuition by 4.2 percent from fiscal year 2013 to fiscal year 2014. Huidekoper said a 3 to 4 percent annual increase in the University’s operating costs necessitated a rise in tuition as opposed to an increase in payout from the endowment, citing the recently volatile market as a reason not to increase the endowment’s annual payout.

“It’s been a tough time for investments,” Huidekoper said, adding, “We’re very pleased” with the high return from fiscal year 2013.

The University uses a three-year average to decide how much of the endowment to use for the budget to account for market fluctuation, Schlissel wrote in an email to The Herald.

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One Comment

  1. So Clown College has been around since 1764 yet it has the smallest endowment in the Ivy League and a very small endowment compared to other major private universities (e.g. Stanford, Northwestern, etc.). How the hell did that happen?

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