Princeton’s Endowment: Funding for Future Generations

Princeton’s endowment, built up over more than two centuries with gifts from alumni, parents, and friends, has a history of exceptionally successful management with steady longterm growth. Managed by the Princeton University Investment Company (Princo), the endowment comprises more than 4,000 individual invested funds. Payout from each endowed fund may be spent, but the original gift principal of the fund typically will remain intact in perpetuity.

The University’s first scholarship fund was endowed by James Leslie of the Class of 1759 in 1792; since then, thousands of generous donors have established endowed funds in support of the University’s mission. These funds are at the foundation of Princeton’s capacity to conduct groundbreaking research, preserve and transmit knowledge, and provide an extraordinary education to talented young men and women—both now and in the future. They are essential to keeping Princeton at the leading edge of teaching and learning as costs increase, knowledge expands, new technologies are invented, and international competition increases.

Princeton has one of the highest endowments per student in the country. It subsidizes every student—educational expenditures are approximately double the University’s tuition.

As of March 31, 2016, the endowment was valued at $21.3 billion.

Over the past 25 years, its average annual growth rate has been over 12 percent, despite the economic challenges of 2008-9.

The average annual return on the endowment for the past decade is 10.1 percent, which places the University's endowment among the top percentile of 471 institutions listed by the Wilshire Trust Universe Comparison Service.

FREQUENTLY ASKED QUESTIONS

What does Princeton’s endowment support?

Although only a relatively small portion of the endowment can be spent each year, its payout provides the largest portion—nearly 50 percent in FY 2015-16—of Princeton’s operating budget revenues. Furthermore, endowment payout provides almost 80 percent of the University’s scholarship budget and has allowed Princeton to make significant improvements in its financial aid policies, including the shift to a noloan policy for undergraduate financial aid packages. It also supports fellowships, professorships, teaching programs, research initiatives, and other programs specified by donors. Fiscal year 2016’s balanced operating budget totaled $1.7 billion.

How is the endowment invested?

Princeton’s investment strategy balances risk and reward by apportioning the funds in the endowment into a variety of asset classes, including public and private equities, real assets, fixed income, and cash, all of which behave differently over time.

How does the University determine how much of the endowment can be spent?

The University has a spending framework that determines how much of the endowment is spent each year and how much remains in the endowment for the future. The spending rule stipulates that the amount of payout distributed per unit of endowment will increase each year by a specified standard percentage, provided that spending remains within a specified range as a percentage of market value. That annual growth percentage currently is 5 percent, a level that reflects expectations about the University’s likely average inflation rate and projected long-term investment performance. This means that in both weak and strong markets, and regardless of how much of a year’s earnings take the form of dividends, interest, or capital appreciation, the amount of spending per unit of endowment each year will be 5 percent more than the previous year, unless the trustees approve a change in the payout per unit.

What is the “spending rate”?

The spending rate is the amount of endowment payout per unit divided by the market value per unit at the beginning of the fiscal year. Princeton’s policy does not stipulate a specific spending rate. As of July 1, 2016, the target spending rate range is between 4 percent and 6.25 percent. The University, in conjunction with the Trustee Committee on Finance, reviews its spending to determine whether adjustments in payout are required. The trustees periodically adjust the payout up or down to optimize the spending rate. Such adjustments have occurred seven times over the last twenty years.

What is the Infrastructure and Administrative Charge (IAC)?

Income from endowed funds strengthens the University’s permanent financial foundation to support activities related to Princeton’s teaching and research mission. While fund distributions provide resources for the direct costs of these activities, the University incurs their associated indirect costs, such as facilities and maintenance, administrative services, compliance and risk management oversight, technology infrastructure, and systems needed to carry out the endowed purposes. To defray a portion of the indirect costs of endowed activities, an annual Infrastructure and Administrative Charge (IAC) has been assessed since its first authorization by the Board of Trustees in FY2012, as allowable by New Jersey law. In addition, the University assesses an Endowment Services Charge that helps cover the administrative costs related to managing the endowment.

The IAC rate is 8.0% of total distributed payout for each eligible fund, and may be adjusted periodically. The IAC ensures that the purpose of the endowed funds can be fully realized and sustained in perpetuity.

Where can I learn more about the endowment?

Each winter, Princeton releases a Report of the Treasurer, which includes a financial statement overview from the Controller, a report on investments from Princo, and consolidated financial statements. In addition, the Office of Finance and Treasury has a website: https://finance.princeton.edu/