Penn endowment return similar to Ivy League peers

On the heels of Penn reporting an 18.6 percent endowment return for fiscal year 2011, which ended June 30, peer schools have announced similar numbers.

FY 2011 marked the second consecutive year in which the University’s investments yielded a positive return, following a steep dip in FY 2009. The endowment results were reported at a University Board of Trustees meeting Sept. 15.

Harvard and Yale universities — which boast the two largest endowments for higher education institutions in the nation — reported returns of 21.4 and 21.9 percent, respectively. Cornell, Duke and Stanford universities also reported positive investment returns of 20, 24.5 and 22.4 percent, respectively, for the year ending June 30.

Other schools came in slightly under Penn’s 18.6 percent return. Dartmouth College and the Massachusetts Institute of Technology reported FY 2011 returns of 18.4 and 17.9 percent, respectively.

In the Ivy League, Brown, Columbia and Princeton universities have not yet announced their endowment performance.

INTERACTIVE: Fiscal Year 2011 peer endowments

“We’re very pleased with our relative position [compared to other schools] given our asset allocation,” Executive Vice President Craig Carnaroli said. “Historically, there have been much larger gaps between Penn and our peers, and we want to continue to narrow that gap as much as possible.”

At the same time, though, “we still want to preserve capital in a down market,” Carnaroli added.

Chris Geczy, an adjunct Finance professor in the Wharton School and academic director of the Wharton Wealth Management Initiative, said Penn’s endowment returns versus those of its peers “are extremely comparable statistically” and indicate that the different schools “employ a number of similar investment strategies.”

Valued at $6.6 billion as of June 30, Penn’s endowment is currently the fifth largest in the Ivy League, behind Harvard, Yale, Princeton and Columbia. At the close of FY 2010, the University had the 11th largest endowment of all colleges and university systems in the nation.

Harvard and Yale reported that their endowments had grown to $32 billion and $19.4 billion, respectively, by the end of FY 2011.

But whereas Harvard and Yale saw their investments plunge a substantial 27 and 25 percent, respectively, for FY 2009, Penn fared relatively well in comparison, posting a 16 percent loss during that time.

As a result, Penn’s three-year annualized endowment return for FY 2011 was 4 percent.

Geczy explained that Penn’s endowment model has generally been designed to tolerate lower returns than schools like Harvard and Yale in a strong market in exchange for smaller losses when the market is underperforming.

With Penn’s endowment return on par with its peers this year, Geczy said it is “pleasantly surprising and gratifying that we were able to do so well in both a crisis and a favorable market.”

As of June 30, Penn’s ten-year investment return stood at 6.8 percent, falling below the marks of other Ivy League institutions that have released data. Harvard, Yale and Dartmouth have announced ten-year annualized investment returns of 9.4, 10.1 and 7 percent, respectively.

Cornell has not yet reported its ten-year annualized return for FY 2011.

The average ten-year return for endowments and foundations with more than $1 billion was 6.5 percent, according to data compiled by the Wilshire Trust Universe Comparison Service.

While William Jarvis, managing director of the Commonfund Institute — which conducts research on investment management practices — said FY 2011 marked a strong year for endowments overall, he noted that a look at today’s financial climate tells a different story.

The most recent quarter for the stock market — which came to a close on Friday — logged its worst decline since 2009, with the Dow Jones Industrial Average down 12.1 percent.

For Jarvis, another recession like that of 2009 could prove to be a major blow for college and university endowments.

“To the extent that you can preserve capital and live to fight another day, you’re going to have a chance to recover,” he said.

Though Carnaroli confirmed that Penn’s endowment was down for the first quarter of its FY 2012, he said exact numbers were not available. Regardless, the University is keeping a close watch on the markets as the year moves on.

“There’s still a lot of volatility out there, and we need to be sure that we continue to preserve and grow the endowment,” Carnaroli added. “We’re not in the clear yet.”

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