U. announces record endowment of $6.9 billion after returns of 51.5%

Brown’s endowment generated returns of 51.5%, reaching $6.9 billion for fiscal year 2021, the university announced in a statement. Press release Thusday, . Returns include $2.4 billion in investment gains and an additional $120 million from donations. The University cited strong global market performance for the endowment’s success.

Total endowment and returns far exceed those of fiscal year 2020, when the University saw an endowment of $4.7 billion after returns of 12.1%, The Herald Previously reported. The gains came in fiscal year 21, which started July 1, 2020 and ended June 30, 2021.

The 40.8% growth of the S&P 500 index in FY21 indicates the strong performance of industries across the board. Such market-wide performance is unlikely to be repeated, according to investment office managing director Joshua Kennedy ’97. “It has been an extraordinary year in the financial markets. Most of the price declines that accompanied the onset of the pandemic actually took place in the prior fiscal year,” he said. “The response to the crisis by governments around the world has taken the form of monetary and fiscal stimulus, which has helped push up prices.”

Other universities also experienced strong growth in FY21. Harvard saw 33.6% returns yale saw 40.2% and Penn saw a 41.1% to augment .

The endowment contributed $194 million to the University’s FY21 operating budget, which represents about 15% of the total operating budget – an average of about $19,000 per student.

The exact percentage of the endowment that goes into the university’s operating budget is between 4.5% and 5.5% of the overall endowment, Kennedy explained in an email to the Herald. Payment is determined by the Society – the highest governing body of the University. “The Society considers a balance between current needs and future needs,” he wrote. “For example, the payment was increased last year to help cover the costs of health and safety measures taken by the University.”

More than 3,300 separate endowment funds make up the endowment as a whole. In the press release, the University specifically highlights the role that monetary contributions to endowments have played in enabling the creation of a fund to provide full scholarships to Veteransa fund supporting investment in Providence Public Schools K-12a new fund created to launch Brown Center for Alzheimer’s Disease Research and continued funding of The Brown Promise, which replaced all undergraduate student loans with financial aid grants. Financial aid receives 32% of endowment funding for the operating budget, the largest percentage of endowment funds.

Provost Richard Locke P’18 hailed the impact this growth will have on the University’s future initiatives. “The endowment is a fundamental financial resource for Brown’s academic mission, ensuring that no student who aspires to attend college will face a cost barrier and that Brown scholars contribute locally and globally through research, teaching and high-impact audience engagement,” he said. said in the press release. “Over time, the positive impact of this year’s historic return will have a transformational effect on Brown’s financial support for the work of current students, faculty, and staff, for future generations of scholars, and the impact that we can have on some of the most pressing challenges facing society.”

But the impact of the endowment cannot be accurately understood in the context of a single year. “The investment program is intended to achieve its long-term goals: decades or more,” he said.

Kennedy also explained that the University is taking prudent steps to ensure continued endowment growth. “In order to preserve this resource in perpetuity, the endowment is invested with the aim of exceeding the rate of expenditure in real terms, that is to say above inflation,” he wrote. “Because the endowment is invested to earn a relatively high rate of return, careful risk management is central to the endowment’s investment program.”

Likewise, he pointed out that the increase in the endowment will not immediately have a profound budgetary impact. “The contribution of the endowment to the operating budget is calculated on a rolling three-year basis, he writes. “The total will not climb higher next year, but it will increase steadily over the next few years assuming stable returns from the endowment portfolio.”

The FY21 numbers reflect broader growth in Brown’s endowment since 2000, according to the press release. Over the past three years, Brown’s endowment has grown at an average annualized rate of 24.1%. Over the past five years, the average rate has been 19.6%, and over the past decade, the rate has averaged 12.9%. The average rate over the last twenty years is 10.3%.

The University’s performance exceeded both its own benchmarks as well as the returns of its peer institutions. Brown’s own benchmark portfolio projected returns of 43.1%. According to consulting firm Cambridge Associates in the University’s press release, Brown’s returns of 51.5% far exceeded the average and median returns – 35.6% and 34%, respectively – than other schools. obtained for financial year 21.

Kennedy attributed this relative growth to the effectiveness of the university’s investment office and its partners. “The core of the Endowment’s investment program is to hire external managers as partners who invest capital on our behalf. These partners are selected on the basis of their exceptional abilities as well as on the basis of their integrity,” he wrote. “The Investment Office team, with the support and oversight of the Company’s Investment Committee, is working diligently to identify excellent partners who can create significant value for Brown.”

Public equity funds, which represent 19.8% of the University’s investments, returned 58.9%. Private equity funds, which represent 39% of investments, generated a return of 86.8%. The absolute return represents 24.8% and the return 15.3%. The University also generated smaller positive returns on real assets and fixed income investments.

As a result of the COVID-19 pandemic, which caused the University to incur over $55 million in additional expenses and result in the loss of over $30 million in revenue, the University ended the fiscal year 21 with a budget deficit of $52.2 million. However, as Kennedy explained, there are limits to how the endowment can be used to fill such shortfalls, since the gifts that make up the endowment have designated, legally binding goals attached to them. “Brown can’t just use the endowment funds as he sees fit,” he wrote. “However, there is a portion of the endowment that is used without restriction and the payment to the University was increased last year precisely in order to meet increased costs resulting from the pandemic.”

Despite the endowment’s performance in FY21, Kennedy said the Investment Office is unlikely to change its approach to long-term investing. “The staffing investment program is not going to change much,” he wrote. “While the portfolio is dynamic, the heart of the program is a dedicated team of professionals working to create lasting partnerships with some of the world’s most qualified investors, while receiving support and guidance from an engaged investment committee. and informed.”

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