Despite a 3.9-percent drop in Penn's endowment over the last year, the University is sticking to its current investment plan.
Given the state of the financial market, outsiders and University officials agree that Penn's commitment to its long-term strategic financial goals is the best way to keep the endowment strong in the long run.
Penn saw losses in its equities - investments in stocks - this past fiscal year, but also saw gains in the value of its hedge funds, private equity, natural resources and real estate.
And it's those gains, coupled with Penn's plans to continue diversification of those assets, that leave Penn officials confident about the future.
"We don't have a large private-equity and real-estate portfolio today," but they expect to roughly double investment in those areas, said Kristin Gilbertson, Penn's chief investment officer.
She added that these gradual investments will most likely be made over the next two years.
When Gilbertson came to Penn in 2004, the University's portfolio was composed largely of public equity, fixed income and asset returns. She, along with others, created a strategic asset allocation to diversify the portfolio over time, and expects the endowment to benefit in the long run because of this move.
The strategic asset allocation "looks at what the returns in various asset classes [are], and what do we want to build them to over a period of time," said Executive Vice President Craig Carnaroli. "We're still moving toward those."
And while the market has had an impact on returns this year, "our strategic asset allocation has not changed as a result," Carnaroli added.
Finance professor Rob Stambaugh said the University's focus on the long run will help Penn ride out the current climate.
"The smartest thing is not to overreact, and stay the course," he said.
These moves to diversify should put Penn more in line with peer institutions, which historically have had more exposure to those alternative asset classes, Gilbertson said.
Moves like these "make good financial sense," she added.
The decision to stick to the current diversification plan is one that is supported by industry experts like Jud Koss, managing director of Commonfund, an asset-managing firm specializing in nonprofit institutes.
Because the endowment is designed to sustain the institution in perpetuity, "endowments are invested in a whole broad range of asset classes, so . if something goes down then [the school is] cushioned because [it's] diversified, and something will undoubtedly go up," he said.
