Wednesday, September 17, 2014
Hanover — The value of the endowment accumulated through decades of donations and investments at Dartmouth College reached $4.5 billion on June 30, after a fiscal year in which $778 million in investment gains and $146 million in gifts and transfers more than offset $189 million in spending.
“Strong equity markets drove endowment returns, but the portfolio benefited particularly from excellent performance within private asset classes,” Pamela Peedin, an alumnus of Dartmouth and the Tuck School of Business, who is the chief investment officer, said in a release announcing the results.
The release heralded a 19.2 percent return on endowment investments that surpassed the 15.3 percent return of a benchmark portfolio comprising 60 percent equities, or stocks, and 40 percent bonds.
Justin Anderson, a college spokesman, said that $1.6 billion, or 36 percent of the endowment, was “invested in private investments.”
Dartmouth pursues an investment strategy that aims to achieve returns sufficient to cover spending and offset inflation without taking on excessive risks. “Historical averages indicate that an annual return between 8 percent and 10 percent is needed to meet this goal,” according to the college’s audited financial statement for fiscal 2013. In fiscal 2014, Dartmouth tapped the endowment for 20 percent of the revenue for its operating budget. The inflation rate during that period was 2.1 percent.
Dartmouth is in the company of many large pension and endowment funds in its quest to boost returns through alternative investing — stakes in hedge, private equity, venture capital, real estate and commodity funds. That quest has been successful in many years, although such investments can be risky, are difficult to sell under adverse conditions, come with high management fees and obligate the college to invest more at the discretion of outside managers. That potential obligation was $437 million at the end of fiscal 2013.
Some big investors have begun to reconsider such risky assets. On Monday, the $300 billion California Public Employees Retirement System announced that it would unload its entire $4 billion stake in hedge funds as part of an ongoing effort to reduce the risks in its portfolio. Calpers cited the complexity and high costs of hedge fund investments.
Dartmouth’s Monday release did not detail the makeup of the college’s portfolio during fiscal 2014. A year earlier, the portfolio comprised about one-fifth hedge funds, one-quarter private equity and venture capital partnerships, and one-sixth commodities and real estate, with most of the remainder — just over one-quarter — in stocks, according to the annual endowment report.
Anderson said the allocation of endowment assets during fiscal 2014 and the current composition of the investment committee that oversees the college’s portfolio would be disclosed in an endowment report by the end of the year.
Finding the appropriate balance between risk and return is the day-to-day job of Peedin, who works in Boston, and the 10 members of her investment office staff. Ultimately, safe and wise stewardship of the endowment is the responsibility of the 26-member board of trustees.
“Dartmouth’s performance is attributable in large part to the world-class investment managers with whom we partner,” Peedin said.
New Hampshire law requires disclosure of all transactions between a nonprofit organization and a private firm in which a trustee of that nonprofit is an executive or owner. In 2012, in a disclosure to the New Hampshire Attorney General’s Charitable Trust Unit, a college official said that 13.5 percent of the endowment’s assets at that time were managed by trustee-affiliated firms.
Dartmouth leaders and spokesmen have unflinchingly defended the investment management role of some trustees, arguing that some of “the world’s leading money managers” are on the board, so that avoiding stakes in their funds would have driven down returns from endowment investments.
Rick Jurgens can be reached at rjurgens@vnews.com or 603-727-3229.