Endowment starting to recover

Though Princeton University has projected that its endowment will grow 10 percent this academic year, Yale administrators said they are leery of making any projections about Yale’s endowment return, though they said it is currently slightly up from its lowest point last June.

Yale’s endowment, like Princeton’s, is largely invested in assets that are not easily valued, and financial markets could change by the end of the fiscal year on June 30, administrators said, making it difficult to speculate about where the endowment will stand. But in an interview with the News last month, Provost Peter Salovey and University President Richard Levin said they were “optimistic” that the endowment’s recovery this year would be enough to allow Yale to forgo future budget cuts.

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“A lot can happen between now and June 30,” Provost Peter Salovey said. “We just don’t know.”

And asked if Princeton’s 10 percent figure might be premature, Salovey said, “I think so.”

Princeton’s revised projection comes just five months after President Shirley Tilghman said the university was expecting its endowment’s value to hold steady, after losing 23.7 percent in the economic meltdown last year. When Princeton administrators were constructing the budget for the 2010-’11 fiscal year in September, they assumed the endowment would gain nothing this year, Tilghman said in a September 2009 letter to the Princeton community. At the time, they hoped it would grow 10 percent by the fiscal year ending June 30, 2012 — two years ahead of the university’s projections now.

The initial projections were “based on ongoing uncertainty about the extent and timing of the recovery of the markets,” Tilghman said in the letter, adding that administrators had no choice but to continue delaying construction projects, eliminating staff jobs and reducing undergraduate dining hours to save money.

But the Princeton projection is just that — a projection, based on what administrators have observed in the markets and the estimated performance of the endowment to date, Princeton spokeswoman Emily Aronson said.

“Of course we recognize that the final return, when everything is finalized, could be different from our projection,” Aronson said.

Princeton’s investment return rose about 5 percent during the fiscal quarter ending Sept. 30, 2009. Yale did not release an equivalent figure.

Yale’s endowment, like Princeton’s, is heavily invested in illiquid assets — whose values are not measured every day — in private equity, real estate and venture capital. The one part of both endowments that can be tracked regularly is stocks and bonds, which make up only 15 percent of Yale’s portfolio and 20 percent of Princeton’s. And the stock market had certainly made gains over the fall, as much as 16 percent, based on the Standard & Poor’s 500 index.

But the rest of both portfolios is much murkier. No ticker exists to update investors on the value of a forest in Vermont or a stake in a venture capital firm, for instance.

Accountants at Princeton University Investment Company and Yale’s Investments Office work for months, long after June 30, to come up with a final figure for the investment return, Aronson and Yale administrators said. (The 24.6 percent plunge in Yale’s endowment was not announced until the end of September 2009, while Princeton’s 23.7 percent loss was finalized in late October 2009.)

Real estate, private equity and the other non-traditional asset classes are recovering much more slowly than the stock market, three experts interviewed said. And even the stock market could fluctuate between now and June 30, said John Griswold, the executive director of the Commonfund Institute, a nonprofit investment consulting firm.

“It’s impossible — unless you have a crystal ball — to predict what the market might do,” Griswold said.

At Princeton, Eisgruber said the rebound in Princeton’s endowment would allow the university to avoid another round of budget cuts. But the cutbacks of 7.5 percent that Princeton administrators mandated for all departments this year and next year will remain in effect. Princeton will re-invest this year’s return in order to bolster its endowment.

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