(June 12, 2012)—Underwhelming investment returns have forced the Nobel Foundation to pare back the monetary payment it offers to prize recipients by 20%, the Board of the 112-year old foundation announced on June 11.
Although volatile markets and low interest rates have weakened returns for asset owners across the board, the Nobel Foundation, with an endowment of $437 million as of December 31, 2011, has struggled mightily since 2008. According to its annual report, the foundation’s market value has dropped to about 80% of its peak at the end of 2007. The plan to cut prize winnings was part of a bid to reduce the overall expenditures of the Nobel Foundation to bring them in line with its average capital returns, a press release said. Given that the annual report states that the foundation aims for an expenditure ratio of about 3-4%, that suggests that the foundation has been unable to reach that level of returns.
“The Nobel Foundation is responsible for ensuring that the prize sum can be maintained at a high level in the long term. We have made the assessment that it is important to implement necessary measures in good time,” Lars Heikensten, Executive Director of the Nobel Foundation, said in a release.
The bulk of the problem may lie with the foundation’s asset allocation, which has been overweight equity since the end of 2007. Although the endowment has shifted to increase its investment in alternatives, particularly in hedge funds and private equity funds, it remains about 50% allocated to the equity markets.
“We have traditionally held a high proportion of equity and that has not given a good return over the last decade,” Mr. Heikensten told the Wall Street Journal.
The monetary prize, extended to the winners of the six awarded categories, will be cut from $1.4 million to $1.1 million. The move represents the first reduction since 1949.