Endowment Basics

Last updated March 2010.

What is the endowment?

The endowment is a long-term investment fund that provides annual financial support for all that the college does – teaching, research, financial aid, building and grounds maintenance, and operations. Endowment funds are invested by the college in such a way that they can provide for annual spending and also sustain value over time, to benefit future generations at Vassar as they do today. The endowment is not a “rainy day” fund; rather, each year the college includes in its budget an amount from the endowment to provide additional financial support at a sustainable level. During the past decade, the endowment has typically provided about 30% of the college’s operating income. What is the value of the endowment and how is it distributed between restricted and unrestricted funds?

As of June 30, 2008, the market value of the endowment was $848.7 million, down slightly from the all-time high of $869.1 million on June 30, 2007. As of June 30, 2009, the preliminary estimate of the market value of the assets in the endowment totaled $660 million. The global financial crisis that unfolded during the college's 2008/09 fiscal year took a severe toll on the endowment, which suffered an 18% loss on investment -- much better performance than that seen in world equity markets but still a significant loss. We expect that many college endowments will report losses of similar magnitude. In addition to the decline in investments, the assets in the endowment have decreased because of the draw to meet the college’s operating costs ($47 million in fiscal year 2008/09), which is offset only partially by incoming gifts.

Vassar’s endowment is the 7th largest in our 21-college peer group, a position that has remained fairly constant over many years. However, on a per-student basis Vassar’s endowment is only the 11th largest, the result of Vassar’s larger student body. Per-student endowment is seen as a better measure of institutional strength than absolute endowment size because it better reflects the extent to which the endowment helps to underwrite the academic and other programs provided to students. Vassar’s endowment per student relative to peers as of June 30, 2008 was as follows:

endowment returns

In the simplest terms, restricted endowment funds are given by donors for a particular purpose (such as financial aid to students, library book acquisitions, lectureships, or endowed faculty positions) and the money in that fund can only be used to further that purpose. Unrestricted funds are given to the college to further its mission, but the college has the freedom to determine what priorities these funds will support. Of the total endowment, about 68% is in restricted funds, and 32% in unrestricted.

Where did it come from?

Donors created the endowment, starting with Matthew Vassar, who established the first endowment at the college’s founding. More than 1,000 individual endowed funds have been generously donated over the college’s 150-year history, and new funds are contributed each year. These funds are “pooled” for investment purposes, but each individual endowed fund is also tracked separately so that donors can know what the funds they established are supporting.

Who manages it?

The Board of Trustees is responsible for the endowment and establishes the policies that govern its management and use, consistent with donor intentions and New York State law. Annual endowment spending is determined by the Board as part of the budget process, and the Investments Committee of the Board determines how endowment funds are invested. Assistance is provided by internal staff and external investment consultants, while professional investment firms manage the actual investments.

How is it invested?

The investment goal for the endowment is to earn an average annual return that provides for endowment spending, compensates for the impact of inflation, and also provides some real growth – taken together, a long-term average annual return objective of about 9%. The asset allocation for the endowment is designed to achieve the return objective on average over the long run. Vassar’s target asset allocation has evolved over time: many years ago, endowment assets were invested heavily in fixed income assets to provide a steady stream of annual income, with some equity exposure to provide for long-term growth. Beginning in the late 1980s, alternative assets including private equity, real estate, commodities, and investments involving the use of equity and debt derivatives were added to provide the benefits of greater diversification and the opportunity for enhanced returns. Vassar’s current target asset allocation is as follows:

Asset Type Allocation
Domestic Equities 27%
International Equities 18%
Emerging Markets Equities 5%
Absolute Return & Long/Short Equity 20%
Private Equity/Venture Capital 10%
Real Assets 10%
Fixed Income 10%

Multiple investment managers are used within most of these categories; overall, the college retains about 40 different managers, each of whom is evaluated against an appropriate performance benchmark. Allocations to investment strategies are maintained fairly consistently, though some managers may employ more opportunistic investment strategies within their particular areas of expertise, and asset class weightings may be adjusted at the discretion of the Investments Committee.

What about risk?

All investments involve risk – otherwise, there would be no potential for a return. Vassar’s goal is to manage the endowment in such a way that aggregate risk is reduced, by investing in strategies that are not highly correlated with one another and by managing exposures to certain investments that, by themselves, can entail higher levels of risk. Diversification properly employed is the key to generating consistent returns while reducing risk over the long run.

How has the endowment performed?

As noted above, the endowment had investment losses of about 18% during the 2008/09 fiscal year. The following chart shows annual investment performance over the past ten years and also annualized performance for five, ten, and twenty years. The past decade saw extraordinary volatility in markets, most recently because of the global financial crisis and earlier because of the tech bubble, the events of September 11, the Iraq war, and a number of major corporate accounting scandals. The result was an average annual compound return for the decade of only 5.2%, but also a median return of 9.1%. The average annual compound return for the past 20 years was 9.3%, which fulfills the college's investment objective as stated in the investment policy, and the median return over this period was 13.1%. Vassar's returns generally compare well with our performance benchmark, against 21 peer colleges, and also with the broader universe of endowments tracked by our investment consultant.

Fiscal Year Vassar Endowment (1) Vassar Benchmark (1) Stock Index (2) Bond Index (3) 60/40 Stock/Bond (4) Inflation (5)
2009 -18.1% -13.7% -26.2% 6.1% -13.3% -1.8%
2008 0.8% -1.0% -13.1% 7.1% -5.0% 5.0%
2007 20.5% 17.4% 20.6% 6.1% 14.8% 2.7%
2006 15.7% 11.1% 8.6% -0.8% 4.9% 4.2%
2005 14.5% 11.8% 6.3% 6.8% 6.5% 2.5%
2004 16.8% 14.7% 9.1% 0.3% 5.6% 3.3%
2003 3.7% 5.3% 0.3% 10.4% 4.3% 2.1%
2002 -6.8% -3.4% -18.0% 8.6% -7.3% 1.9%
2001 -8.1% -4.2% -14.8% 11.2% -4.4% 3.2%
2000 21.3% 11.1% 7.2% 4.6% 6.2% 3.7%
5-year 5.7% 4.5% -2.2% 5.0% 1.1% 2.5%
10-year 5.2% 4.4% -3.1% 6.0% 0.9% 2.7%
20-year 9.3% 8.6% 7.3% 7.1% 7.5% 2.8%

(1) The 2009 figures reflect preliminary reports and are therefore subject to change.
(2) Stock index return is as measured by the S&P 500 stock index
(3) Bond index return is as measured by the Lehman/Barclays Capital Aggregate bond index
(4) 60/40 Stock/Bond is a traditional measure of performance for diversified portfolios
(5) Inflation is as measured by the CPI-U

Another way of charting the information contained in the table above is to picture the number of times that the endowment has achieved a certain level of return over the last twenty years. The y axis represents the frequency of a particular return in number of years and the x axis represents the percentage of return.

endowment frequency of returns

How is spending from the endowment determined?

Each year the Board of Trustees determines a level of endowment spending based on the college’s budgetary needs, determined by a lengthy planning process, and other factors, such as the overall size of the endowment. This endowment draw is broken into two parts: an inflation-based “spending rate” that is applied to individual endowed funds assigned to particular uses; and a supplemental draw against those portions of the endowment whose use is subject to the Board’s discretion. The supplemental draw was initiated in the late 1990s to help address deferred maintenance on campus. Supplemental draws also have supported special costs associated with major fund-raising campaigns. Currently, these additional draws are providing time to allow the college to restructure and return to a sustainable, inflation-based rate of support from the endowment, generally accepted as falling between 4.5% and 5.5% of market value.