Home ListingApril 4, 2016

Princeton Defends Fee Spend to Legislators

The $22.7 billion endowment has been paying more to external managers over the last three years—but for top gains.

Reported by Featured Author

Princeton University’s endowment paid at least $299 million, or 1.4% of total assets, in fees to 160 outside managers in fiscal year 2015, the Ivy League university told US legislators in response to a US Senate inquiry.

The figure does not include performance-based compensation, Princeton added in the letter. The endowment earned 12.7% in investment return in 2015.

“PRINCO seeks to structure fees in a manner that helps align interests… and create a disincentive for advisors to take undue risk.”The US Senate Finance Committee and the House of Representatives’ Ways and Means Committee recently asked 56 private schools with assets north of $1 billion to explain how they manage and spend their endowment money. Princeton’s $22.7 billion endowment is the fourth largest in the US, according to the 2015 NACUBO-Commonfund study.

The university reported that fixed fees to external managers have increased over the last two years, despite little change in the overall number of managers. Management costs increased from $245 million in 2013 to $266 million in 2014, while the fund employed 161 and 159 external managers in each year respectively. The endowment gained 11.7% in 2013 and 19.6% in 2014.

“PRINCO [Princeton University Investment Company] seeks to structure fees paid to outside advisors in a manner that helps align the interests of the advisors with the interests of the university and create a disincentive for advisors to take undue risk,” the letter said.

Internal costs of PRINCO staff and other departments decreased slightly over the last three years. The university paid $21 million to 42 staff members in 2015, a decline from $23 million in 2013.

The NACUBO-Commonfund report revealed in January that US endowments recorded the lowest fiscal-year returns last year since 2012—an average of 2.4% net of fees. The drop also pushed 10-year gains down to 6.3%, from last year’s 7.1%.

“2015’s lower average one-year return is a great concern,” said John Walda, NACUBO’s president and CEO. “Lower returns may make it even tougher for colleges and universities to adequately fund financial aid, research, and other programs that are very reliant on endowment earnings and are vital to institutions’ missions.”