Endowment loss in line with national trends

by Mika Jehoon Lee | 10/6/16 12:30am

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by Mika Jehoon Lee / The Dartmouth

Dartmouth’s endowment reported a loss of 1.9 percent on its investments for the fiscal year that ended in June 30, posting its worst performance since 2009. The endowment is now valued at $4.5 billion, down from $4.7 billion last fiscal year.

The negative net return accounts for the $100 million net investment loss and subtraction of the year’s distribution of $200 million, offset by $119 million in endowment gifts and transfers.

“The endowment was not immune from turbulent global markets,” Chief Investment Officer Pamela L. Peedin said in a press release. “But despite overall weak absolute results, we did see impressive relative returns from some managers who were able to capitalize on opportunities resulting from the volatility.”

This fiscal year witnessed stagnant growth in major international markets and in domestic healthcare and energy sectors.

“The Brexit vote hit in June and it really crushed a lot of asset markets,” economics professor Bruce Sacerdote said. “It was a big negative factor and that was included in this year’s performance.”

Economics professor Eric Zitzewitz also emphasized the difficult investment climate.

“This was a flat year for[Standard & Poor’s 500] and a down year for the international markets,” Zitzewitz said, referencing the stock index and the global economy respectively. “Hedge funds also had a tough year, perhaps a tougher year than we expected from the way equity markets move, so that’s playing into [the low return] too.”

Poor performances across these markets could have contributed to the College’s negative returns — Dartmouth annually allocates approximately 35 percent and 20 percent of its total investments to global equities and equity hedge funds respectively, according to its Investment Policy Statement.

The College is not alone in seeing underwhelming results. In the Ivy League alone, five other schools recorded negative returns on their endowments. Cornell reported the lowest return among all the Ivies with a loss of 3.3 percent. Yale posted the largest gain of 3.4 percent, but when factoring in its administrative spending, its endowment still diminished in value.

Despite delivering the worst performance since the financial crisis in 2009, Dartmouth’s return is slightly higher compared to the 2.7 percent average loss U.S. colleges and universities took this fiscal year, as estimated by Cambridge Associates, a global investment firm that manages almost $9.9 billion worth of foundations and endowments.

In a press release, chair of the Board of Trustees Richard Kimball said that the Board focuses on long-term results as they manage the endowment.

“We position the portfolio and the institution to be prepared for investment volatility in the short term to ensure that we are maximizing our opportunity for exceptional long-term risk-adjusted results,” he added.

The endowment remains crucial in funding the College’s operations. Endowment distributions have steadily increased since 2011, according to the endowment report in 2015. In the most recent fiscal year, the endowment distribution constituted over 20 percent of the College’s operating budget.