Penn's overall endowment had the largest percentage drop in market value among the top 20 funded universities in the 2008 fiscal year.
Between July 1, 2007 to June 30, 2008, it lost 6.1 percent of its value, or $401.9 million, falling to $6.2 billion from $6.6 billion.
Of that decrease, 3.9 percent - which The Daily Pennsylvanian reported as the overall drop last fall - resulted from a decline in the rate of return on Penn's endowment investments due to downturn in the stock market.
The remaining change stemmed from withdrawals from the endowment, since Penn is allowed to spend a portion of the funds every year and take out money to finance capital projects. The most significant reason for that decline was due to a one-time withdrawal of $162 million last year to fund the Center for Advanced Medicine, according to Chief Investment Officer Kristin Gilbertson.
In the long run, Penn aims to spend on average 4.7 percent of the endowment per year. The actual rate will increase in FY 2009 to carry out the school's no-loan financial aid policy, according to Penn's 2007-2008 financial report.
"We've done significantly better than the S&P; 500 and other numbers for college return averages, and what we're now experiencing is consistent with what we've budgeted," said University President Amy Gutmann.
Average returns at colleges and universities dropped 3 percent in FY 2008, according to a survey of 796 U.S. and Canadian colleges and universities conducted by the National Association of College and University Business Officers and TIAA-CREF Asset Management.
A follow-up study of 435 of those schools by NACUBO and the Commonfund Institute reported that endowment investment returns at colleges and universities decreased 23 percent in the first five months of FY 2009, from July 1 to Nov. 30, 2008.
Penn has not released formal numbers for FY 2009, but Gilbertson told the DP last November that the the overall endowment was down about 7 percent as of Sept. 30.
She said yesterday that she expects Penn's return to fare significantly better than the average in returns for FY 2009.
Executive Vice President Craig Carnaroli said NACUBO's focus on overall endowment change, rather than returns, may be because the numbers are easier to compare across universities but said schools themselves pay more attention to returns.
"In general, what people are focused on is performance, and so much of that is explained by the return that I'm not terribly concerned about the overall percentage change," he said.
Ninety-two percent of Penn's endowment is invested in the Associated Investments Fund, a pooled investment vehicle. AIF's underperformance was mainly attributed to underallocations in some sectors that did well - energy and materials equity - overallocation in stocks in the hedge fund portfolio and the immaturity of the real estate portfolio, all of which are expected to smooth out over time.
Fixed income assets accounted for 15 percent of AIF's allocations, which exceed the school's target of 10 percent for the long run and are meant to provide a liquidity buffer.
Despite declines, endowments have continued to perform better than the 10-year returns of market indexes, outperforming on average by 6.5 percent. Experts attribute positive results to schools' long-term strategies in building diversified portfolios.
Unlike peer schools such as Harvard University and Dartmouth College, both of which recently announced a wave of bond sales in an effort to boost endowment figures, Penn does not plan to issue any bonds, Gilbertson said in a recent Bloomberg interview.
Penn's total revenues also increased by 6.4 percent from $4.78 billion in FY 2007 to $5.09 billion in FY 2008, according to the financial report. Overall donations to the University increased 22.2 percent from $361.4 million in FY 2007 to $441.6 million in FY 2008.
This made it the most generous year in annual fundraising in Penn's history, largely a result of the success of the Making History Capital Campaign.
Of that, gifts to Penn's endowment totaled $178.9 million, and the endowment has received $80.5 million in new cash receipts so far in FY 2009.
But Penn's individual schools are still feeling pressure.
About 17 percent of Wharton's budget comes from the endowment, and Dean Thomas Robertson said the school is reacting to cuts and decreased donations by pulling back capital expenditures in areas like delayed renovations to Steinberg-Dietrich Hall.
He added that some donors are only temporarily refraining from giving.
"Even people who are wealthy are nervous or want to see how things unfold," he said.
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