The University got more out of its investments this year than in years past, but it has a long way to go to catch up with its Ivy peers.
Penn got a 12.5 percent return on its endowment for the fiscal year ending on June 30, an increase of about four percentage points from last year's returns, officials announced last week.
This brings Penn's endowment to about $5.3 billion this year, significantly smaller than some peer institutions'. Most of the endowment funds are invested, and a portion of the returns are used for University initiatives like financial aid.
This year's 12.5-percent returns translates into an additional $625 million for the endowment and other projects. Last fiscal year, the endowment was about $4.4 billion, and it has been boosted by gifts as well as by investments.
Executive Vice President Craig Carnaroli said that the University had set a goal of 11.8 percent returns for the last fiscal year and that officials are pleased to have outperformed their target.
But Penn's rate of return remains far smaller than what several other schools boast.
Harvard University's endowment reached $29 billion, seeing 16.7 percent returns in the last fiscal year. Yale University had 22.9 percent returns - some of the highest any American university has ever seen - bringing its endowment value to $18 billion. Cornell's returns were closer to Penn's at 11.4 percent for its endowment of about $3 billion.
With Penn's endowment, it can fund about 8 percent of its budget for University operations, Executive Vice President Craig Carnaroli said, while Harvard funds about one third.
But officials are confident Penn is catching up to these institutions.
Carnaroli said that Penn historically has not chosen alternative - and riskier - investments, as other schools have. Such investments include hedge funds and private equity. Safe investments - such as bonds - often yield low returns.
He said Penn is progressing in developing alternative assets, but such investments take several years to yield significant results.
"We are likely going to lag our peers, but we feel - given the progress that the investment office is making - that gap is narrowing considerably," he said.
Portfolio diversification became an investment strategy in the late 1990s as investors sought both investments with high returns - and high risk - and those that are lower risk but yield less impressive results, according to Lucas Capital Management investment firm investor Brett Flynn.
Carnaroli attributed the University's increased returns to increased international investment and good performance with hedge funds. He said Penn has funneled over $500 million into 23 new investments.
Carnaroli also added that his office has been filling key positions in the investment office, with the installment of Chief Investment Officer Kristin Gilbertson in 2004, along with three other top posts since then.
Gilbertson said that since she came to Penn, their decision to invest more in international equities and emerging markets and to decrease focus on U.S. equities has "made a major positive contribution to returns."
University President Amy Gutmann said she expects returns to continue to improve.
"This year will be better . and, depending on how the market performs, the following year will be still better," she said.
"This is the kind of area that you need to make the right long-term decisions," Carnaroli said. "You don't make short-term decisions in this because getting it right in the long term can make a really big difference to the University."
