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Endowment falls to $3.2 billion from record high

Annual return within top quartile of 144 peer institutions, top half of Ivy League despite losses

By
Senior Staff Writer
Wednesday, October 5, 2016

The University’s endowment fell by 1.1 percent to $3.2 billion over the 2016 fiscal year, according to a University press release.

This is a marked departure from the previous fiscal year, when the endowment reached a record high of $3.3 billion after a 5.7 percent return, as The Herald previously reported.

“The opportunity set this year was very narrow, and it was a challenging environment,” wrote Managing Director Jane Dietze in an email to The Herald. “We did a good job of protecting capital.”

Global markets were weaker than in the previous year, as the S&P 500 posted a gain of just 4 percent in comparison to 7.4 percent last year.

The University invested 24 percent of the endowment in public equity, 20 percent in private equity, 5 percent in real assets, 7 percent in fixed-income instruments and 7 percent in cash, according to a release from the Investments Office.

“The only bright spots in terms of performance were bonds, gold and global real estate,” the release stated.

A loss of 1.1 percent still means that the University beat its aggregate benchmark of -2.2 percent. The number represents the point-of-reference expected returns for each asset class weighted by their share of the University’s investments.

“Beating the benchmark suggests that our active management adds value,” Dietze wrote.

That percentage loss also places Brown in the top quartile of 144 peer institutions by endowment returns as defined by Cambridge Associates, according to the Investments Office release.

The University’s returns also exceeded those of half of its Ivy League peers. While Yale and Princeton earned returns of 3.4 percent and 0.7 percent on their respective funds, Harvard and Cornell lost 2 percent and 3.3 percent of their respective endowments.

“It’s a long-term race, and we have been laying the foundation to be highly competitive during the last three years,” Dietze wrote of Brown’s performance relative to its Ivy League peers. “We want to be highly competitive, but only with a high-quality return and doing what is right for Brown in terms of risk and liquidity.”

Between 4.5 percent and 5.5 percent of the endowment’s value is contributed annually to the University. The endowment funded 18 percent of the University’s operating budget this year, distributing $166 million, or $18,500 per student, according to the Investments Office release. Thirty-one percent of the endowment goes to scholarships and fellowships, 20 percent to professorships, 4 percent to libraries, 6 percent to instructional programs, 16 percent to general academic support and 23 percent is not earmarked for any specific purpose.

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  1. This article doesn’t purport to address the investment performance of Brown’s endowment. Rather, it merely reports the net loss suffered by the endowment after taking into account the endowment’s investment gains or losses, contributions to the endowment (e.g., through the capital campaign or otherwise), and the use of endowment income or capital to fund university needs. The fact remains that the investment performance of Brown’s endowment is the second worst in the Ivy League (at an annualized rate of 7.5% over the last 10 years, ranking significantly behind Columbia, Yale, Dartmouth and Penn), and the Brown Annual Fund has seen virtually no dollar growth for at least 10 years, while the number of contributors to the BAF during that period has steadily declined. Why doesn’t the BDH report this, since this would seem to be the real story?

    • Most university endowments in the US have been pretty flat the last 3-4 years with the exception of Yale and Princeton.

  2. To state that a -1.1% return in FY16 “demonstrates active management value” simply because it beat an arbitrary benchmark established by the investment manager is intellectually dishonest. There are many questions that could be asked, such as is there something wrong with Brown’s current investment mix if the S&P 500 has outperformed the Brown endowment return for the past several years. Without more details about the decision making process, one could just as easily argue that the investment managers destroyed value (and damaged the University’s fragile budget) rather than added value.

    As Warren Buffett notes, investment advisers typically subtract value. “It seems so elementary, but I will guarantee you that no endowment fund, no public pension fund, no extremely rich person” wants to believe it, he said. “They just can’t believe that because they have billions of dollars to invest that they can’t go out and hire somebody who will do better than average. I hear from them all the time.” http://blogs.wsj.com/moneybeat/2016/05/02/warren-buffetts-epic-rant-against-wall-street/

  3. Nancy Morris says:

    Princeton has not officially released the FY 2016 returns of its endowment. On what is the claim here that “Princeton earned returns of … 0.7 percent” based, if anything?

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