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Penn reported one of the highest investment returns ever on its endowment for the 2017 fiscal year — but the spike is unlikely to change how Penn's money is spent.

A university endowment refers to "money or other financial assets that are donated to universities or colleges," according to financial education website Investopedia. Typically, the purpose of the endowment is to be invested so that university's total assets grow. And according to the website of the University's Office of Investments, endowment funds are primarily directed towards student financial aid and faculty compensation.

This year, Penn reported a 14.3 percent investment return on its endowment, bringing the endowment’s total value to a record-high of $12.2 billion. The endowment has grown by $1.6 billion since the 2016 fiscal year, when it reported a total value of $10.6 billion despite investment losses of 1.4 percent. 

Returns on equity investments, which refers to the buying and holding of shares of stock on a stock market, drove most of the favorable growth, Bloomberg reported.

Penn joins Dartmouth College, Cornell University, Brown University, Harvard University, Yale University and Princeton University in reporting investment growth that reached historic highs this fiscal year. Columbia University, which is the last remaining member of the Ivy League, has yet to post its endowment returns.

Mark Kantrowitz, a college financial aid expert and the publisher and vice president of strategy at Cappex.com, a website that matches students with colleges and financial aid opportunities, said it's unlikely that Penn will make spending predictions based on this year’s favorable spike. 

Kantrowitz said in emailed statement that colleges make decisions related to endowment spending on a five-year average of their endowments returns, which also counts for inflation. With that in mind, a one year spike in endowment returns will not typically result in big spending changes for the University.

"You wouldn't want to base big changes in spending on just one year that may be atypical," Kantrowitz wrote.

The funds that constitute the University's endowment only come from donors. The Trustees of the University of Pennsylvania select members of an Investment Board who are responsible for managing the Associated Investments Fund, which are “invested in equities, bonds, hedge funds, natural resources, private equity and real estate limited partnerships,” according to the most recent Annual Financial Report from 2016. 

Penn's complete 2017 Annual Financials Report produced by the University Office of Investments is not yet available, though most of Penn's peer institution have released theirs. 

“Spending is predominantly donor restricted but does have notable impact on student financial aid, research and faculty funding,” Vice President for Finance and Treasurer MaryFrances McCourt wrote in an email.

“Under Penn’s spending rule policy, the strong performance of FY17 will impact the FY19 going forward. The gains will support the scholarships, programs and professorships that the endowment supports,” Vice President of Budget and Management Analysis, Trevor Lewis, said.

Student financial aid accounts for 24 percent of budget expenditures in the School of Arts and Sciences, 18 percent in the School of Engineering and Applied Science, 18 percent in the School of Nursing and 11 percent in the Wharton School. 

According to the Operating Budget report for fiscal year 2017, around a quarter of the percentage of the endowment income goes towards undergraduate financial aid. Twelve percent of Penn's operating budget comes from investment income generated by the endowment. 

“Investment returns can vary widely from one year to the next and a one year increase in returns does not significantly impact budgets,” McCourt added.

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