$2.89 billion endowment hides low per-student rank

The University's modest endowment affects Penn's tuition, financial aid resources and other key funds. It's a $2.89 billion Achilles' heel, some administrators say. The University's overall endowment ranks 12th in the nation and fifth in the Ivy League -- topping only Cornell and Brown universities and Dartmouth College. But when calculating in Penn's roughly 20,000-member student body, Penn's national endowment ranking plummets to 65 in endowment per student. And the modest figure allows administrators to justify consecutive tuition hikes, a lag in revamping financial aid programs and $200 million worth of bond issues in this year alone. The overall endowment operates like a mutual fund, according to Director of Development for Undergraduate Financial Aid Joanne Hanna. Labeled the "Associated Investment Fund," money is invested primarily in stocks and fixed income securities, such as bonds. About 5 percent of the total return, comprised of dividends, interest and capital gains -- profits from the sale of financial assets -- is earmarked for research, professorships and facilities projects. The remainder is plowed back into the endowment and the principal remains untouched in perpetuity. As of March 31, the endowment's one-year total return was 25.2 percent, Associate Treasurer for Investments Lucy Momjian said. Day-to-day operating expenses are covered by the Penn Fund -- a separate pool of money that is spent every year for the general support of the University. Development officials funnel about $11 million annually into the fund, raised through alumni, foundation and corporate donations. But some critics -- including 1976 University alumnus Erik Larson, who wrote a highly publicized March 1997 article in Time on the cost of a Penn education -- question the "look but not touch" philosophy governing the endowment, especially with the University's Board of Trustees recent approval of a 4.5 percent tuition increase for the 1998-99 academic year. In responding to these complaints, Hanna noted that the endowment provides a safety net for the University in "down years" -- when an ever-fluctuating stock market rears its unstable head. In the late 1970s, for example, financial problems forced Penn officials to dip into their meager then-$200 million endowment, which sparked a minor uproar. The endowment had only increased to $218 million, or by about 9 percent, when Sheldon Hackney began his 12-year tenure as University president in 1981. By contrast, Princeton's endowment had already reached the $1 billion mark in the same year, and Harvard tipped the scales at more than $2.5 billion -- about 13 percent less than Penn's current endowment. Harvard's endowment has more than quadrupled in the past 17 years, landing the Cambridge, Mass., school at the top of the fiscal year 1997 national endowment ratings. The Quaker way Hanna attributed Penn's modest endowment to a legacy of neglect stemming from a Quaker mentality which did not emphasize financial gain. "Penn has never been a wealthy school," she added, noting that Emory University's $4.3 billion endowment, ranked sixth in the nation, is largely a result of the Atlanta-based Coca-Cola Co. family donating a huge chunk of stock to the school. Another strike against the University is that its endowment was only established around 1809, 69 years after its founding. In addition, Penn did not launch significant fundraising efforts until the early 1950s. Princeton, by contrast, has been actively raising its endowment money since it was founded more then 250 years ago. The University retained the image of a local institution prior to that period, according to Vice President for Development Virginia Clark. Yet development officials have succeeded in reinvigorating the endowment in recent years. The University's Capital Campaign started the trend, sending the endowment over the $1 billion benchmark. The four-year-long attempt, which kicked off in 1988, has been hailed as one of the most ambitious projects in the University's financial history. Additionally, Penn's endowment totaled $2.5 billion at the close of fiscal year 1997, representing a $400 million, or roughly 20 percent, increase from the year before. An arduous climb Vice President for Finance Kathy Engebretson attributed the steady increase to a generally favorable stock market and the University's renewed emphasis on fundraising. Although the University experienced a $40 million loss in investments in the first five months of fiscal year 1998 -- which began July 1, 1997 -- the month of December brought the University a $90 million return. The overall $50 million gain constitutes a 5 percent return on investments in the first six months of fiscal year 1998, compared to a 23 percent return in the previous fiscal year's first half. About eight outside managers determine the University's investment strategy, including the Swiss Bank Corp.'s SBC Brinson division, City of London Investment Management Co. and Sanford Bernstein & Co. The West Conshohocken, Pa., investment firm of Miller Anderson & Sherrerd manages "pro bono" about $850 million of Penn's endowment, which is earmarked for fixed-income securities. University Trustee Paul Miller -- a former trustee chairperson -- was one of the founders of the firm, which donates its fees to the endowment. Prior to the University's decision to enlist the aid of outside managers, current Trustee Investment Committee Chairperson John Neff managed the equities without charge. Both Neff and Miller saved the University millions of dollars, according to Engebretson. Outside managers typically charge a fee of about 0.5 percent on the money they funnel into domestic equities, she added. The road ahead "Even schools with four times [Penn's] endowment still raise money," Clark said. "We'll never be able to raise enough because we always need to support faculty and facilities." Clark noted that raising the endowment to fund professorships and undergraduate financial aid are top priorities at present. At $2 million a pop, gifts for endowed chairs fund a top faculty member's hefty salary. The Development Office is looking to raise funds for 125 endowed chairs across all 12 schools, Clark said. Over the past 1 1/2 years, the office has raised funds for 13 chairs, she added. Additionally, Development has raised $40 million, or 20 percent, of its goal to increase the endowment for school-specific scholarships and overall undergraduate financial aid by $200 million. Of the $50 million Penn allocates annually for aid, only $2.3 million, or 4.6 percent, is covered by the University's $2.89 billion endowment. This percentage lands Penn at the bottom of the Ivy League in terms of its endowment-financial aid ratio.

Please note All comments are eligible for publication in The Daily Pennsylvanian.