Endowment grows rapidly

While most university endowments grew over the last fiscal year, Yale’s investment return was nearly triple the national average reported in a national study released Tuesday.

According to the 2003 National Association of College and University Business Officers Endowment Study, a report examining the fiscal year which ended June 30, the average rate of return on investments of the 723 participating colleges was 3 percent. The Yale Investment Office reported in September that the University enjoyed an 8.8 percent investment return in the last fiscal year.

The overall market value of Yale’s endowment in the 2002-2003 fiscal year was about $11 billion, second only to Harvard University, whose endowment is about $18.8 billion.

“[Yale Chief Investment Officer] David Swensen and his group have proven themselves to be excellent managers of our endowment,” Yale Provost Susan Hockfield said. “They stick to the principles and it works.”

While this year’s average rate of return is better than the previous two years, during which colleges experienced negative rates, NACUBO Manager of External Affairs Damon Manetta said most endowments did not retain their value due to inflation, payouts from endowments, and management fees.

“If you add all that together, the goal of the endowment is to meet the value that the combined number turns out to be,” Manetta said. “Endowments were not performing up to the level that they would like to be performing.”

Manetta said endowments need to average between eight and nine percent to break even. This figure is roughly equal to the approximate average return over the past 10 years. Hockfield said Yale had an average growth rate of 16 percent during the same period.

Princeton University, the University of Texas system and Stanford University follow Harvard and Yale on the list, all with endowments of around $8.7 billion.

“One thing that is unmistakable is, compared to other institutions, Yale provides superb management of its endowment,” Yale spokesman Tom Conroy said.

Conroy said about 29 percent of the University’s budget comes from the endowment, two times as much as 10 years ago.

Yale’s rate of return more than doubled the average rate for all universities with endowments over $1 billion last year, the report said.

This year, Yale experienced a large reversal in the percent change in the endowment, which takes expenditures, withdrawals and growth from gifts into account in addition to investment returns. Compared to a -1.9 percent change in the 2001-2002 fiscal year, the University’s endowment grew 4.9 percent in the last fiscal year.

Conroy said Yale’s Investments Office takes measures to prevent fluctuations in the endowment from radically affecting the University’s budget. Yale uses a spending rule, with a long term spending rate of five percent, and a smoothing rule, which adjusts spending to account for changes in the value of the endowment.

“I think the critical thing that University has done is to try to ensure that the endowment will support the University in perpetuity,” Conroy said. “That’s [what] the spending rule is designed to do, so that you don’t jeopardize the future of Yale by spending more from the endowment than it can provide and sustain.”

Manetta said while he does not expect university endowments to experience the double digit growth of the 1990s, he does think endowments will continue to grow.

“Assuming the economy stays on the course it is on, the endowment growth will be slow but very steady upwards,” Manetta said.

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Bridget Kelly
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