Following a dismal financial year in 2002, Dartmouth's $2.1 billion endowment is starting to show signs of recovery. College assets rose by two percent over the 2003 fiscal year, surpassing expectations of zero yield, but failing to keep up with larger gains among other Ivy League schools.
Vice President of Finance Adam Keller attributed the gains to good financial management, noting that the endowment's returns surpassed standard indexes including the S&P 500, Russell 3000 and Russell 2000. "The fact that we beat the market indexes in all those areas shows that [the gain] was a function of our investments," he said.
Though markedly better than the 5.7 percent loss of 2002, last year's returns were modest compared to those of other Ivies. Yale and Harvard both saw gains of over 10 percent, while only Cornell fared worse than Dartmouth with a 1.9 percent return on its endowment.
According to Keller, this poor relative performance stems from the nature of Dartmouth's investment strategy, which is geared toward achieving long-term gains. The College's portfolio is comparatively heavy in private equities -- investments in small start-up companies -- and light in bonds, which tend to do better during economic slumps.
Though the basic investment strategy is determined by Dartmouth, the College enlists roughly 80 private managers to select investments in various fields, Keller said.
College administrators said they are not alarmed by last year's relatively low return, pointing to high long-term yields as an indication of the stability of Dartmouth's investment strategy.
"You can't really look at what happens over one year," said Keller, "because we have an asset allocation strategy that's supposed to really get long-term performance."
From this perspective, investments have been much more successful. Over the past 10 years, the endowment has enjoyed a 13.4 percent average annual return. Though the overall strategy is assessed from year to year, only minor adjustments have been made during this time, Keller said.
"We don't try to change our strategy too quickly," said Provost Barry Scherr. "You are going to have the occasional bad years, and we seem to have had ours."
The effects of these bad years have been felt throughout campus, as budget cuts will affect the Tucker Foundation, student employment, course offerings and library facilities this academic year.
These cuts are directly linked to the endowment's performance, as 37 percent of the annual budget is typically drawn from endowment appreciation. The poor economy has forced the College to dip into the principal of the endowment for the past three years.
Recent gains will not affect this year's budget, said Scherr, adding that students may not see large budget increases for a number of years.
"I think anything that was reduced out of last year's budget sets the level for where the various parts of the institution are right now. Any increases will be relatively small," Scherr said.
Still, last year's gain has come as a surprise to the College, which expected no return and even a five percent loss as late as last winter.
"We thought we would have to really struggle with this year's budget," said Keller. "The two percent endowment return ... has brought that budget projection problem way down."
College officials are optimistic about the endowment's immediate future. Next year's projected budget is based on expectations of a five percent gain in the 2004 fiscal year. Keller said he hopes for gains of eight percent in the following years and ultimately expects to return to the 10 to 12 percent yields the College has enjoyed in the past.
Throughout the Fall term, Keller and Scherr plan to work closely with faculty, the Subcommittee on Priorities, the Internal Budget Committee and the Student Budget Advisory Committee to establish priorities around which next year's budget will be shaped.
