H ere's a quick math exercise for you. If Penn were to decide tomorrow to divide up its endowment fund and give each student a share, everyone on campus would receive about $230,000. Sounds pretty good, right? Not when you consider what that figure would be at some of Penn's Ivy League peers.
Harvard, for instance, could give each of its undergrads and grad students about $1.36 million. But then, that's what a $25 billion endowment will do for you.
And when you're Harvard, it's apparently not unreasonable to assume a healthy rate of return on that $25 billion as well. Last year's take was a generous 19.2 percent increase in endowment dollars.
Penn, meanwhile, boosted its $4 billion fund by 8 percent, about one percentage point better than the S&P; 500.
That might be decent for an individual's retirement savings, but it's still only about half of what comparable schools are earning. The median return for the 25 largest university endowments in America last year was 15.8 percent.
With these data in mind, it should come as no surprise that the University consistently claims that it lacks the funds to match innovative projects put forth by its peers. Princeton wrote off millions of dollars of student debt years ago by eliminating all loans as part of its financial-aid packages. Then again, an $11.2 billion endowment and small student body make this possible.
Penn, on the other hand, still burdens its financial aid recipients with thousands of dollars in debt.
That's just one example.
A larger nest egg is needed for the University to realize many of its long-term goals, and Penn's overly conservative investment strategy is crippling.
Obviously it will take time to build up any kind of major cash stockpile. But consider the following data presented by Cornell professor Ronald Ehrenberg:
At the beginning of fiscal year 1990, Harvard's endowment stood at $4.68 billion, just a hair over Penn's total today. That worked out to $281,000 for every full-time student on campus. Again, just a little more than the same figure for Penn today.
Ten years later, Harvard's endowment had ballooned to $19.2 billion, or $1.06 million per student. And don't forget, that decade started with a two-year recession. Not to mention Harvard's recent streak of double-digit returns, compared to Penn's meager 8.5 percent.
The answer is not the simple line some give about needing to "have money to make money." Penn has money. What it doesn't have is a strategy that is aggressive enough to bring in enough money to compete. Funny, considering some of the world's brightest financial minds have offices just blocks from College Hall.
Penn's reliance on slow but steady investments over that past decade did keep it from losing money as its peers did after the dot-com bubble burst. In 2001 Harvard lost 2 percent -- chump change when you consider the gains from the previous five years.
Don't expect that strategy to improve so long as the University is setting "internal goals" of 8 percent gains when last year's mark was nearly 17 percent. How can the fund managers honestly say to themselves, "We'd like to make about half as much this year?" At any real-world company, a goal like that would get you fired.
If Amy Gutmann is serious about her vision for Penn, what she needs is financial managers with real goals for growth. At this point, even being average would be an improvement.
