University endowments are closely linked to the overall performance of the market, according to Kenneth Redd, the director of research and policy analysis at the National Association of College and University Business Officers, an organization that publishes yearly reports on college endowments across the country. In fiscal year 2010, endowments performed "right in line" with the Standard & Poor's 500-stock index an index commonly used to gauge overall U.S. market performance with returns of approximately 13 percent, Redd said.
Like many other institutions affected by the 2008 economic crisis, the College's endowment plunged by $220 million during the first quarter of the 2009 fiscal year, falling a total of 23 percent over that year. In response to the loss, College President Jim Yong Kim sent an email to campus on Oct. 9 that said he did not expect the endowment to return to 2008 levels of $3.66 billion "for quite some time."
The gains over the past two fiscal years are "encouraging numbers," said Richard Fass, vice president for planning at Pomona College, who tracks university endowment performance.
Despite these improvements, the endowment's overall growth is not the most important measure of the College's ability to spend more money, Dartmouth economics professor Andrew Samwick said. College trustees will take recent overall market performance into account when determining how much of the endowment can actually be used to fund College initiatives.
"The numbers bounce up and down, but what really matters is how much more of it we will be able to spend," Samwick said.
Institutions that have already published their fiscal year 2011 numbers have posted an average of 20 to 25 percent gains, Redd said. These numbers are "not a surprise" given that the S&P had approximately 30 percent returns over a similar period, he said.
Once all endowment data has been released, Redd said he expects nationwide endowment returns will be within a range of 15 to 30 percent for gains.
The College's peer institutions have performed similarly over the past fiscal year, with Stanford University, Harvard University and Yale University posting 19.5 percent, 21.4 percent and 21.9 percent returns, respectively.
Market performance over the summer hurt by the European debt crisis, the continuing slow economic recovery in the United States and high rates of unemployment caused the S&P to drop 10 to 15 percent since the end of fiscal year 2011, affecting all investors and most likely university endowments, according to Redd.
"My guess is that endowments would clearly be down," he said.
Officials at other universities have expressed concerns with market performance since June. John Powers, chief executive officer of the Stanford Management Company, said in a statement that he is "concerned about the uncertain macroeconomic climate and its impact on global financial markets," The Stanford Daily reported.
Harvard Management Company President and CEO Jane Mendillo said the Harvard endowment is "not immune" to the market trends over the past three months since the fiscal year ended, according to The Harvard Crimson.
Universities can use investment strategies to outperform the market, according to Samwick. By investing in private equity and other assets not included in the 500 companies covered by the S&P, the College can attempt to avoid swings in the market, Samwick said.
Although the equities markets have been "ugly" since the end of June, Dartmouth's endowment may be saved by its allocations in bonds, real estate and absolute returns funds, economics professor Bruce Sacerdote said in an email to The Dartmouth. While the S&P dropped 13 percent, The Dow Jones Credit Suisse Core Hedge Fund Index was down 5 percent for the same period, according to Sacerdote.
Sacerdote said Dartmouth's endowment has been able to sustain a 7 percent growth rate over the past 10 years, beating the equity market's near-zero return rate over the same period by following best practices from the Yale Model, an investment strategy pioneered by David Swensen, the current chief investment officer at Yale. The Yale Model emphasizes investment across a "broad range" of assets, including "illiquid" assets such as real estate and private equity. Institutional investors like Dartmouth have access to the best of these funds, according to Sacerdote.
"The statistics show that our team does a terrific job on an absolute basis and a risk adjusted basis," he said. "If you could give them your money to manage, you would."
Although the strategies of individual university investment committees vary, universities typically invest half of their endowment in stocks and bonds and the other half in hedge funds, private equity and real estate, Redd said.
Endowment managers conduct extensive research to determine where to invest their funds, according to Fass. Many institutions choose to hire advisors such as Cambridge Associates to help manage their endowments, Fass said.
Representatives from Cambridge Associates declined to comment.
