Staff Editorial: To keep pace, invest boldly
September 28, 2007
Yesterday’s announcement that the endowment skyrocketed 19.2 percent from last year’s total should be encouraging for all members of the College community. Buoyed by an impressive 19.5 percent return on the fund, the College’s asset jump of nearly $100 million — from $492 million last year to $585.9 million this year — marks an important step forward for an endowment that has lagged behind its peers in recent years.
p. The high performance should come as no surprise. In a year when booming domestic and international markets forged ahead at impressive rates — giving investors up to 45 percent returns for some emerging international markets — any performance lower than what the College posted would have been disappointing.
p. Investment returns of 20 percent or higher were the norm this year for university endowments. Yale University’s endowment grew at a rate of 28 percent, the highest performer of schools that have reported so far. The College compared well with other large and prestigious endowments, including the University of Pennsylvania, which reported investment returns of 20.2 percent, and Massachusetts Institute of Technology, which saw a 22.1 percent return on its investments.
p. High returns on the endowment are critical for the College, particularly given the recent state budget cuts. A strong endowment allows the school more independence from the state and also allows the College to continue to bolster support for financial aid, faculty resources, building projects and a host of other areas that will enable the school to keep pace in the competitive world of higher education.
p. The College attributed the improvement in its performance to a new investment strategy. (We would point to the phenomenal investment climate over the past year that would allow most amateur investors to do remarkably well.) The school should embrace any changes it has made, but also continue to become more aggressive in its investments. The endowment’s future health lies in diversification and integration with international markets, something that investment leaders have realized and advocated for years.
p. Schools with money in international equity funds and emerging markets saw returns of about 30 percent and 45 percent for the year, respectively. The College has rightly understood that it needs to move away from an investment portfolio dominated by conservative stocks and bonds, and it should continue to become more aggressive in its investments so that it may one day catch up to its peers.
p. It is significant that investment returns have overshadowed our fundraising problems, and College President Gene Nichol and others may be quick to capitalize on this increase for public relations reasons.
p. However, domestic markets may not be as favorable over the next 12 months as they were over the last year. For this reason, College decision makers must also act to ensure that our investment strategy is guided by savvy, market-based decision making.