Dartmouth invests more than $1 bil. annually

by Ritika Nandkeolyar | 11/1/99 6:00am

While most students may view the College as primarily an educational institution, thousands of national and international corporations see Dartmouth as an essential source of capital.

The College annually invests over $1 billion in stocks, bonds, hedge funds, real estate funds and venture capital funds and employs over 70 professional investment managers to administer the myriad of endowment funds.

The earnings of the endowment, established as a perpetual financial base for the College, are used to supplement tuition, government grants and other sources of revenue. Most of the earnings are reinvested.

A strong U.S. market, as well as investment in high-performing venture capital funds, resulted in a 15.4 percent return on the College's endowment last year, significantly exceeding the target growth rate of 10 to 12 percent growth.

The College's endowment continues to grow at a rapid rate, mainly due to the current long-boom of U.S. economy.

The market value of the over 4,000 individual funds that cumulatively form the endowment was $17.1 billion at the end of the 1999 fiscal year on June 30th.

"The high growth rates mean that we are well up in the top quartile of our peer universe," Director of Investments Jon King said.

The College's endowment ranked in the top 25 percent of 150 endowments, foundations and pension funds for both the three-year and five-year periods ending June 30, 1999, according to a report by the Nelland Trust company.

The endowment also ranked in the top quartile in preliminary figures released by Cambridge Associates, another group that monitors university endowments.

The College's Investment office oversees over seventy different external investment managers -- each hired for their own specific asset expertise -- and it is these managers who decide what investments in which companies are made by the College.

As of August, approximately two-thirds of the endowment is invested in traditional assets such as publicly traded stocks and bonds.

The remainder is invested in alternative assets such as hedge funds, real estate funds and venture capital funds.

Although the College does not release an inventory of its investments, in past years the decision of which industries and firms the endowment should invest in has caused controversy.

"In the Investment Office, we don't set policies regarding any kind of social investment standards," King said. "It's our role to maximize the return given the policy and risk parameters given by the Board of Trustees."

According to Vice President and Treasurer Win Johnson, two Trustee committees oversee the College's endowment.

The Investment Committee oversees investment with regards to risk and return, within the ethical parameters set by the Committee on Investor Responsibility.

The CIR banned College investment in 1989 in South Africa and then rescinding the ban in 1993 at the end of the Apartheid regime. Heated student demonstrations in 1989 led, in part, to the CIR's inquiry and subsequent ban.

Last July, the Assembly and other concerned students urged the Board of Trustees to divest from the College's tobacco-related holdings.

However, at this point the CIR -- which meets infrequently -- has not made a ruling forbidding the endowment from investing in tobacco stocks.

According to Johnson, the endowment accounts for 17.2 percent of the College's total educational and general budget.

This was an increase from the 1998 fiscal year, when the endowment paid for approximately 14 percent of Dartmouth's total operating expenses.

Part of this increase is due to the College's use of a new spending formula which now allocates a greater percentage of the fund's previous year's market value for spending during the year.

This set percentage is used to fund specific programs or operate College buildings which the money was intended to support. The remainder of the return, after accounting for expenses and inflation, is put back into the endowment capital to increase its real value and investment funds.

Currently, the spending rate is 4.3 percent of a fund's value.

Previously the spending rate had fallen below four percent, but this allocation was increased due to the consistently good returns over past years, King said.

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