Penn's endowment earned a 6.5% investment return for the 2019 fiscal year — a drop from the 12.9% investment return from last year, the Penn Office of Investments announced Thursday.
A university's endowment is money donated to the institution that is typically invested to grow their incomes. The endowment rate represents the growth of the university's investment gains.
The decrease in the endowment return rate compared to last year's marks a trend across Penn's peer institutions. Brown University’s return rate tops the list this year. However, the rate fell to 12.4% from 13.2%, a much more modest decline in comparison. Harvard University's return rate this year matched Penn's at 6.5%, a fall from 10.1% in the 2018 fiscal year.
The losses in investment return that many universities are seeing may be due to changes regarding how the largest universities manage their endowments, Bloomberg reported. The universities have been investing in hedge funds and private equity. Penn invested 29% of its endowment in hedge funds in 2018, according to Bloomberg. However, in the last year, hedge funds have faced poor returns due to factors such as the United States-China trade dispute.
This year, Yale University's endowment earned a 5.7% investment return, a drop from 12.3% last year. The Massachusetts Institute of Technology's return rate dropped to 8.8% from 13.5% last year, while Dartmouth College's rate fell to 7.5% from 12.2%. Penn's endowment return rate in 2018 was the third highest in the Ivy League, behind Princeton’s mark of 14.2% and a 13.2% return at Brown.
The total value of Penn's endowment is at $14.7 billion, according to the Penn Office of Investments website. This is an $873 million increase from last year, when the endowment was estimated at $13.8 billion. The website stated the growth in the endowment is due to investment returns, donations, spending distributions, and internal transfers.
Each institution typically only uses a fraction of their endowment for the university's programs. Penn has a target of spending 5% of each endowment fund, according to the Penn Office of Investments website.