Princeton Endowment Plans to Cut Ranks of Private-Equity Managers in Half

Princeton University, the third- richest U.S. school, plans to drop half of its private-equity managers as it shrinks investments in leveraged buyouts.

Private-equity stakes rose to more than 35 percent of the university’s $14.4 billion endowment after the 2008 financial crisis, exceeding the target of 23 percent, Chief Investment Officer Andrew Golden said in an interview. He plans to commit new money to 35 of the fund’s 70 private-equity managers.

“Our mantra is fewer, better, stronger relationships,” Golden said. “It applies across the board but most significantly to buyouts,” the largest piece of the university’s private-equity holdings, he said. Golden wouldn’t name firms to be dropped by the Princeton, New Jersey, school.

Golden is an acolyte of David Swensen, chief investment officer of Yale University, who pioneered the strategy of using private equity, real estate and commodities to outperform stocks and bonds. These infrequently traded stakes ballooned as a percentage of big endowments when markets tumbled and stocks were sold to raise cash following the September 2008 bankruptcy of Lehman Brothers Holdings Inc.

Princeton’s investments gained 15 percent in the year ended June 30, beating returns by its two wealthier peers, Harvard University and Yale, whose funds gained 11 percent and 8.9 percent.

Photographer: Chris Kleponis/Bloomberg

Andrew Golden Princeton University Chief Investment Officer. Close

Andrew Golden Princeton University Chief Investment Officer.

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Photographer: Chris Kleponis/Bloomberg

Andrew Golden Princeton University Chief Investment Officer.

Private equity generated a 19 percent return for Princeton in the past year, trailing the 43 percent gain by emerging- market stocks and the 23 percent increase by U.S. equities. Real assets, which include timber and real estate, was the worst- performing category, losing 1.6 percent.

Staying the Course

“Private equity was a source of strength,” Golden said. “The headline of the story is that sticking with your strategy works.”

Golden worked under Swensen at Yale in New Haven, Connecticut, and then at the endowment at Duke University in Durham, North Carolina, before joining Princeton in 1995. Yale’s $16.7 billion fund reported the worst performance among Ivy League schools, hampered by a second straight year of losses on real estate, timber, and oil and gas holdings.

The Ivy League consists of eight private schools in the northeastern U.S. None of the institutions has recouped the record losses incurred in the year ended in June 2009. Princeton lost 24 percent that year, while Harvard, in Cambridge, Massachusetts, fell 27 percent and Yale declined 25 percent.

As investments tumbled, universities cut jobs, froze salaries and postponed building projects.

Second-best

Princeton was the second-best performing Ivy League endowment in the past year, behind Columbia University, in New York, whose fund jumped 17 percent to $6.5 billion.

Institutional funds, including public and corporate pensions, endowments and foundations, returned a median of 13 percent in the past year, according to Wilshire Associates, a consulting firm in Santa Monica, California. The firm’s Trust Universe Comparison Service tracks 1,300 funds and $3 trillion in assets. The Standard & Poor’s 500 Index gained 12 percent in the year ended June 30.

In addition to private equity, Princeton targets 25 percent of its investments in hedge funds, 23 percent in real assets, 15.5 percent in international equities, with a bias toward emerging markets, 7.5 percent in U.S. stocks and 6 percent in fixed income, Golden said. The school had an average annual return of 7.9 percent in the decade through June, beating Harvard’s 7 percent gain and trailing Yale’s 8.9 percent gain.

To contact the reporter on this story: Gillian Wee in New York at gwee3@bloomberg.net.

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net.

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