Penn had the lowest rate of return on its endowment of the eight Ivy League schools for the last fiscal year.
The University reported an 8.5 percent return on its investments in fiscal year 2005, University officials announced last week. These returns added another $320 million to Penn's $4 billion endowment.
While University officials call those numbers part of a "great record for the last five years," Penn dropped from a 16.8 percent return last year, a number which was on par with several other Ivies'.
Now, Penn is lagging far behind most of its peers.
Yale University officials announced 22.3 percent return on their investments in the last fiscal year. Harvard University earned 19.2 percent return. Most other Ivy League universities reported returns ranging from 13 to 17 percent.
University officials, however, say their investment strategy is heading in the right direction.
A greater emphasis on international investments -- including several well-performing companies in Japan -- helped Penn achieve this year's 8.5 percent returns, a number that officials say surpassed the University's internal goals.
Over the last five years, the average return on Penn's investments was 7 percent. Because of inflation, Penn sets its goals at 8 to 9 percent return each year "to stay in the same place," Chief Investment Officer Kristin Gilbertson said.
Gilbertson's emphasis on investing in inexpensive global markets -- a strategy Executive Vice President Craig Carnaroli called "a model for the long term" -- is part of a trend of more risk-taking in Penn's finances.
The Office of Investments is now putting money from Penn's endowment into a variety of diverse assets -- an approach new to Penn, but not to several of the University's wealthy peers, whose returns have been much higher than Penn's.
In the 1990s, most of Penn's endowment dollars were invested in American stocks and bonds -- investments that were low-risk, but that also had low returns.
The Office of Investments was set up in 1998, at which point the University followed the lead of other Ivy League institutions and began diversifying its portfolio.
Gilbertson attributes Penn's 8.5 percent return to a slow start on the diversification bandwagon.
"We're a little bit behind," Gilbertson said. "Some of our larger peers have pursued the alternative asset classes ... for decades."
Under Gilbertson's leadership, Penn has started investing in less traditional assets, ranging from international equities to natural resources.
This strategy, she said, will give Penn greater future returns.
"To make money you have to take risks, and you need to control your risks," Gilbertson said. "You don't want to put all of our eggs in one basket."
But seeing favorable results from these types of investments take several years. This year's 8.5 percent, Carnaroli said, indicates a push in the right direction but is small compared to the returns he wants to see.
"These are more illiquid and longer-term investments," Carnaroli said. "While we've made progress ... it takes time for these things to come to fruition."
