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Endowment: Is It Worth the Effort?

So how is the endowment doing against everyone else? We’ve noted that the College sank a lot of money moving the endowment managers’ offices down to Boston, though I could never figure out why this was a priority. And we, and the State of New Hamsphire, have observed that a good chunk of the endowment is in the hands of Trustees’ investment funds. Has this strategy been worth the effort, and the controversy?

Last year, our $3.7BN endowment returned 12.1%, which places us fourth in the big schools league table compiled by The Skorina Letter, a communication of Charles Skorina & Co., a search firm that recruits chief investment officers and senior financial professionals. The endowment’s return beat the classic 60/40 equities/bond allocation by a healthy 1.7%:

Skorina 1-year Comp.jpg

However, over a five-year span, despite active management by Trustees and the College’s investment staff, we underperformed a 60/40 equities/bond allocation by 1.8% annually. The only major endowment to beat the 60/40 allocation was Columbia, and its performance was only 0.6% annually above that of a plain vanilla strategy.

Skorina 5-year Comp.jpg

One should wonder in general, and as regards the College specifically, if the time, effort and investment in professional money managers is really worthwhile. Is Pam Peedin really worth $825,429/year, when we cannot match the market?

Skorina Compensation Comp.jpg

Inside Higher Ed questions whether the era of high market returns is over, suggesting that, as a result, schools had better watch their pennies. And this extended piece in Institutional Investor makes the case against active management: Beating the Market Has Become Nearly Impossible.

Addendum: In a recent report on October’s Alumni Council meeting, Russell E. Wolff ‘89 T ‘94 summarized Pam Peedin’s comments on the endowment as follows:

The primary long-term investment return goal for the endowment is 8 to 9 percent per year, which allows the endowment to maintain purchasing power after providing for the annual distribution to operations and adjusting for inflation. Dartmouth’s endowment has succeeded in meeting that goal, generating an annualized return of 9.4 percent for the 15 years ending June 30, 2013, and outperforming the 4.2-percent average annualized return for the Standard & Poor’s 500 Stock Index during the same period. Dartmouth’s endowment rate of return also compares favorably with the broad universe of peer colleges and universities, ranking in the top-quartile of the Cambridge Associates Universe of Colleges and Universities.

Note that Peedin did not let on that our endowment growth has been the worst in the Ivies since 2000, after having been the best between 1990-2000, nor that returns over the past half-decade have not come close to meeting her goals.

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