Princeton Endowment Expected to Rise Less Than 5% in Year

Princeton University’s endowment probably earned zero to 5 percent on its investments in the past fiscal year, according to President Shirley Tilghman.

The Ivy League school is expected to release returns for the year ended June 30 by next month. The endowment returned 22 percent in fiscal 2011, and 15 percent in the prior period.

“Better than we thought we were going to be, say back in January,” Tilghman said of the return range in an interview yesterday at Bloomberg LP’s headquarters in New York. “Clearly, after two spectacular years, we’re back on the ground again.”

The expected return range would mean there is no cushion this year for inflation because Princeton increases its budget by 5 percent annually, Tilghman said. Foundations and endowments produced the worst returns of any institutional investor class in the year ended June 30, gaining a median of 0.4 percent, consulting firm Wilshire Associates said Aug. 6.

Princeton’s endowment was valued at $17.1 billion in June 2011. It’s the fourth-largest in higher education in the U.S. and Canada, behind Harvard University, Yale University and the University of Texas system, according to an annual survey of endowments by the National Association of College and University Business Officers and Commonfund Institute.

Princeton’s endowment value dropped 24 percent in the year ended June 30, 2009, after the bankruptcy of Lehman Brothers Holdings Inc. in September 2008 crippled global financial markets.

Liquidity Fund

To prepare for a scenario in which assets fall to the extent they did during the 2008 financial crisis, Princeton created a liquidity fund more than a year ago, Tilghman said. The pool is separate from the university’s endowment and has about $100 million in assets, mostly invested in U.S. Treasuries, she said.

Princeton has been rebalancing its asset allocations, Tilghman said. The school, located in Princeton, New Jersey, planned to drop half of its private-equity managers, Chief Investment Officer Andrew Golden said in October 2010, a process that continues, according to Tilghman.

Princeton, one of eight colleges in the northeastern U.S. that make up the Ivy League, was founded in 1746 as the College of New Jersey. Alumni include first lady Michelle Obama and U.S. Supreme Court Justices Samuel Alito Jr., Sonia Sotomayor and Elena Kagan.

To contact the reporters on this story: Kelly Bit in New York at kbit@bloomberg.net; Janet Lorin in New York at jlorin@bloomberg.net

To contact the editors responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net; Lisa Wolfson at lwolfson@bloomberg.net

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