According to the College’s leading financial experts, President Schapiro and Chief Investment Officer Collette Chilton, the endowment has decreased in value since Chilton last estimated it at $1.4 billion on December 31, 2008. By Schapiro’s estimate, the endowment will stand at around $1.1 billion when the fiscal year closes on July 1, with $92 million availed for the current academic year’s spending. However, “with the volatility of markets and the difficulty in pricing illiquid assets – the specific number is hard to nail down,” Schapiro said.
The last solid calculation of the endowment still remains the $1.8 billion figure determined on July 1, 2008 – the end of the last fiscal year. Schapiro said the College is operating under an assumption of a 30 percent drop from this number by the end of the fiscal year, followed by two years of no change and a return to “something a bit below historic returns” in the fourth year. To this end, the College plans to spend between $78 and $80 million from the endowment next year. “If markets continue to suffer, that number will be reduced over the following couple of years,” Schapiro said.
Provost Bill Lenhart added that the $78 to $80 million target for endowment spending is more reliable than the 6.9 percent figure mentioned in Schapiro’s January all-campus e-mail, “since the latter may fluctuate given endowment performance.” As a non-profit organization, the College is required by federal law to spend at least five percent of its funds every year.
The College’s endowment is invested across six asset classes: 48 percent of it in global equities, 15 in private equity and venture capital, 12 in absolute return, 12 in real estate and real assets, 12 in fixed income and one in cash. According to Chilton, based on estimates calculated at the end of February, every asset class has had a negative return since Jan. 1 except absolute return, which is up 0.2 percent this year. The Investment Committee, which is made up of members of the Board of Trustees and oversees the investment strategy, is refraining from making any changes to the asset allocation. “The Committee reviews the portfolio at each meeting and at this point they have decided to stay the course,” Chilton said.
The current portfolio was approved by the Committee in May 2007, with slight alterations made in 2008. “We are pretty happy with where things are currently and we expect to outperform all relevant benchmarks,” Schapiro said.
Equity markets, in which nearly half the endowment is invested, have continued their decline, accounting for the majority of the endowment’s losses. The Russell 3000, a broad index of U.S. equities, is down 18 percent since Jan. 1. The Dow Jones Industrial Average, which tracks the performance of a smaller subset of the largest publicly traded U.S. companies, is down by a similar figure. The NASDAQ-100, an index that does not include financial companies, is also down by over nine percent this year.
Absolute return – the one asset class in which Chilton reported positive returns in 2009 – encompasses investments in hedge funds, whose managers seek to return gains by investing in areas without much exposure to market fluctuation. While absolute return strategies are increasing in popularity, they are typically high-risk and can leave investors more open to Ponzi schemes, with the recent Bernie Madoff scandal as the latest example.
Investments in real estate and real assets, including properties and commodities, as well as venture capital, are considered “illiquid” because their value is not readily transferable into a dollar amount, thus preventing a firmer calculation of the endowment mid-fiscal year.