Endowment passes $7 billion mark
Penn's investment returns were one of the University's strongest recent performances
September 19, 2013, 9:25 am·
Michele Ozer | DP
Penn’s endowment grew by nearly $1 billion in the 2013 fiscal year, generating an investment return of 14.4 percent, the University announced at a Board of Trustees meeting Thursday morning.
The 2013 fiscal year marks the first time that the University’s investments have eclipsed the $7-billion mark; the endowment was valued at $7.7 billion as of June 30, the close of the fiscal year. Over the year, Penn’s endowment added $960 million through investment performance and picked up another $221 million in gifts. Net transfers also added to the endowment’s value.
The University spent $290 million from endowment funds in the 2013 fiscal year. Annual spending from the endowment has grown by more than 120 percent over the past decade.
The University’s annual return is one of its strongest in recent history. Over the past five years, only the 2011 fiscal year, in which Penn’s endowment returned 18.6 percent, yielded a better annual performance.
Over the past three years, the Associated Investments Fund, which contains the majority of Penn’s endowment assets, has returned an annualized 11.3 percent; the AIF’s ten-year annualized return is 8 percent.
A year ago, in the 2012 fiscal year, Penn’s endowment saw a more modest return of 1.6 percent, which the University said was due in large part to the euro zone debt crisis. The endowment was valued at $6.8 billion at the close of the 2012 fiscal year.
The University’s endowment faced several challenges over the past year. In mid-October 2012, Kristin Gilbertson, Penn’s former chief investment officer, unexpectedly announced that she planned to step down from her position. David Harkins, Penn’s managing director of public markets, led the investment office on an interim basis while Penn searched for a replacement for Gilbertson.
The University announced in April that Peter Ammon, previously a director in Yale University’s investment office, would be the next chief investment officer. He started working at Penn on July 1.
“I think David did an amazing job,” Ammon said of Harkins. “He took over in the fall and did a fantastic job of transitioning and decision-making through a period in which there was clearly change going on.”
In what was a strong run for the stock market, some of University’s top-performing asset classes in the 2013 fiscal year were public equities and absolute return, Ammon said. Penn’s portfolio has traditionally relied heavily on public equities, particularly compared to peer institutions like Yale, which place more of an emphasis on riskier alternative investments.
Although the University’s fiscal 2013 investment return was strong, it fell short of the 20.6-percent benchmark reported by the Standard & Poor’s 500 Index over the same period.
Penn is the first among its Ivy League peers to announce fiscal 2013 investment performance. A breakdown of Penn’s 2013 asset allocation will be available later this semester.
Peer institutions are expected to announce their investment returns in the coming weeks. The University’s endowment is generally the fifth largest in the Ivy League, behind Harvard, Yale, Princeton and Columbia universities.
The Massachusetts Institute of Technology said this week that its investments had returned 11.1 percent through June 30, bringing its endowment to $10.9 billion.
President Amy Gutmann said at Thursday’s board meeting that she expects the University’s fiscal 2013 investment performance to fall among the top ranks of institutions with large endowments.
As Penn’s portfolio continues to grow, it will be critical, Ammon said, that the University maintains the push to diversify its investments — a movement that was started largely under Gilbertson, who became chief investment officer in 2004.
“Diversifying gives us the best chance of navigating through what are inherently very uncertain markets,” Ammon said.