Princeton Endowment Costs Rise to $320 Million to Earn Top Gains

  • Ivy League school fund is fourth-richest at $22.7 billion
  • University responds to congressional inquiry on endowments

The cost to manage Princeton University’s $22.7 billion endowment rose 19 percent in the past two years as the Ivy League school leans on outside managers.

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The fund paid $320 million, or 1.4 percent of assets, for manager and custodial costs in fiscal 2015, the majority of which went to 160 external managers, according to the university’s response to U.S. lawmakers. With its 12.7 percent investment return, among the highest of all schools, Princeton boosted spending to $218 million on student aid, or 25 percent of the fund’s payout.

Princeton, which manages the fourth-largest university fund, included these numbers in an 11-page response Thursday to an inquiry last month to 56 of the wealthiest private colleges by the Senate Finance and House Ways and Means committees. Lawmakers, who set an April 1 deadline for answers, want to know how schools manage and spend their money, especially on financial aid.

“Endowments are frequently mischaracterized as ‘rainy day funds’ or ‘nest eggs,”’ Christopher Eisgruber, president of the Princeton, New Jersey school, wrote. “We depend on our endowment year-by-year to cover half the cost of our operating budget and to meet high-priority capital needs.”

The committees are gathering details on the impact of the tax preferences enjoyed by the schools, including tax-free returns. Colleges have raised tuition faster than the rate of inflation despite the rising values of endowments.

Princeton has increased the amount of money it gives to support low-income students. The $218 million spent on student aid in fiscal 2015 is up from $203 million two years ago, according to the university’s response. The school was the first to remove student loans from financial aid packages and replaced them with grants.

Over the past eight years, the spending rate of the endowment has fluctuated between 6 percent in fiscal 2010 to 4.2 percent in the most recent year.

The school paid $21 million for internal costs to manage the endowment, including staff at its management company, Princo, a decline of $2 million from fiscal 2013. It also spent $299 million in external costs, up from $245 million two years ago. The figures don’t include the external managers’ performance-based compensation, which is a share of returns, according to the letter.

Princeton’s endowment is made up of more than 4,300 separate accounts; one of the earliest dates back to 1759. Its designation is for financial aid, the same purpose for the largest number of accounts, according to the letter. Many of the donations have restrictions on how the earnings can be used.

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