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Brown endowment falls to $6.5 billion after -4.6% return on investment

Finance office attributes decrease to global financial decline

<p>In fiscal year 2021, Brown’s endowment yielded record returns of 51.5%. In fiscal year 2022, the endowment fell to $6.5 billion after a -4.6% return on investment.</p>

In fiscal year 2021, Brown’s endowment yielded record returns of 51.5%. In fiscal year 2022, the endowment fell to $6.5 billion after a -4.6% return on investment.

The University’s endowment saw a -4.6% return on investment for fiscal year 2022, according to a Thursday news release. The endowment fell to $6.5 billion, sustaining a $315 million decline in investment assets.

In fiscal year 2021, Brown’s endowment yielded record returns of 51.5%, The Herald previously reported. The endowment’s average annual returns for 3, 5, 10 and 20 years are 17.4%, 15.5%, 12.3% and 10.0%, respectively.

“Last year’s growth of 51.5% was anomalous,” Joshua Kennedy ’97, managing director of the Investment Office, wrote in an email to The Herald. “That period included the recovery from the crash in financial assets due to COVID but not the crash itself. Governments and central banks went to extraordinary lengths to try to mitigate the economic damage of the pandemic and those actions had significant spillover effects on the prices of stocks and other financial assets.”

In comparison, Kennedy wrote that this year’s performance reflected a “reversion to the mean.”

Contributing roughly $207 million, the endowment comprises 16% of the University’s total operating budget for FY22 across more than 3,300 separate funds invested as a whole and paid out for specific purposes. The largest share funds financial aid, which is 32% of the payout.

The endowment’s annual contribution to the operating budget ranges from 4.5 to 5.5% of the endowment’s average market value over 12 quarters and is decided by the Corporation — the University’s highest governing body. This year’s operating budget contribution represents a 6.7% increase over last year’s payout of $194 million.

With the investment loss, operating budget expenditure and a total of $133 million in endowed gifts, the endowment’s total market value fell from $6.9 billion to $6.5 million over the fiscal year.

Despite the negative return on investment, the University outperformed the market as a whole, which faced steep declines globally due to the COVID-19 pandemic, geopolitical conflicts, high inflation rates and monetary tightening by central banks, according to the news release.

The University’s return outperformed a -10.6% S&P index return over the same period, as well as -6% preliminary mean and median returns from Cambridge Associates for colleges and universities, a key benchmark among institutions of higher education.

But the University’s 2020 decision to divest from fossil fuel assets, which increased in value this year, contributed to the endowment’s performance in comparison to some peer institutions, according to Kennedy.

“Many schools have pursued a similar path but through a promise of future divestment, whereas Brown is already at effectively zero in terms of dedicated oil and gas exposure,” Kennedy wrote. “The endowment's managers understood the possibility of a situation like this emerging when the decision to exit fossil fuels was made, and I doubt there will ever be significant regret over making a decision that is consistent with the values of the University.”

The Investment Office, which works to protect and grow the endowment to provide long-term support for students and advance the University’s mission of research and teaching, explained in the news release that the University’s investment strategy focuses on strong returns over decades rather than in any individual year.

“While recent years have been rich with opportunities to grow the Brown endowment, fiscal year 2022 proved to be a moment when the protection of assets was our paramount goal,” Vice President and Chief Investment Officer Jane Dietze said in the news release.

“The endowment's investment program is designed to achieve high risk-adjusted returns over long periods of time, decades or more, so the focus is never on a single year,” Kennedy wrote. “But in order to protect the endowment's purchasing power from inflation, and to make the annual contribution to the University's operating budget, the endowment has to invest in assets that have risk associated with them, so a negative year is disappointing, but it is not necessarily uncommon.”

The endowment last experienced a negative return in fiscal year 2016.

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Caleb Lazar

Caleb Lazar is the senior editor of data desk for The Brown Daily Herald's 133rd Editorial Board.



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