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A Bigger Bang for BU Investment Bucks

Endowment returns 20 percent for fiscal year 2006

Kenneth Condon, vice president for financial affairs, praises the Trustee Investment Committee for its astute asset allocation, which fueled the investment portfolio gains in fiscal 2006. Photo by Kalman Zabarsky

Paced by strong returns in global equity and hedge fund investments, the Boston University endowment had a net investment return of 20.0 percent for fiscal year 2006, far above the average for peer institution endowments. BU’s endowment stood at $946.4 million at the end of the fiscal year, on June 30.

According to the National Association of College and University Business Officers (NACUBO), the average return on investment for institutions with endowments in the $500 million to $999 million range was 12.8 percent. BU bested that by a large margin, primarily driven by gains of 22 percent in foreign, developed country equities, 18.2 percent in hedge funds, and 48.3 percent in emerging market equities.

BU’s endowment is overseen by the Trustee Investment Committee. Among other responsibilities, the committee determines the ranges for asset allocation of the investment portfolio. The endowment is managed by external investment managers, with oversight by BU and the committee.

“I am very pleased with the growth of our endowment last year,” says President Robert Brown. “Our outstanding performance, relative to our peers, reflects the great management of our investments by our staff and the Trustee Investment Committee.”

Kenneth Condon, vice president for financial affairs, agrees. “As in any investment portfolio,” he says, “returns are driven pretty much by asset allocations, and I think our Trustee Investment Committee deserves much of the praise for identifying those asset classes where we should overweight,” which led to the strong returns.

As noted in the Boston University 2006 Annual Report, BU’s endowment is invested in many types of assets, and it outperformed its benchmark indices in all but two categories. For instance, return on foreign equities was 22.0 percent, while the benchmark index return was 16.9 percent. BU’s hedge funds investment gained 18.2 percent, and the benchmark index gain was 13.7 percent. Private equity gains were 66.7 percent, with the benchmark returning 27.7 percent in the same period.

BU’s endowment has grown substantially in the last 30 years. Endowment growth results from various factors, including investment returns, gifts, and spending and distribution rates. In 1976, the endowment stood at $30.7 million; in 1986 it was $139.2 million; and by 1996 it was $443.7 million. (NACUBO survey results segregate annuity and life income fund endowment assets reported by survey participants. Boston University life income and annuity funds totaled $30.3 million at the end of fiscal year 2006.)
 
“The growth of Boston University’s endowment, through investment returns and new gifts, is key to having the resources to expand the quality and impact of our educational programs,” Brown says. “We are working hard to continue to grow our resources to fuel the aspirations of our faculty for the University.”

Taylor McNeil can be reached at tmcneil@bu.edu.