Endowment Returns 2.9 Percent for 2008

Boston University’s pooled endowment had a return of 2.9 percent in fiscal year 2008 — a preliminary result that compared favorably to both global and national markets, as well as other college and university benchmarks, even though performance fell short of its long-term average return goal. The total endowment was $1.18 billion when the fiscal year ended on June 30.

Pamela Peedin, the University’s chief investment officer, says that the University’s long-term strategies are designed to cushion the blow of the current tumultuous market environment. “Over the last year, the Investment Committee has been working to set long-term strategies that we expect to generate superior long-term returns and to moderate the volatility of returns we have experienced,” says Peedin, who became BU’s first CIO in May 2007. “The understanding is that you will have years where you have extremely buoyant market returns, and others where they will be more muted, or negative. The strategy we’ve set is designed to allow the endowment to participate in those buoyant equity markets, but, as importantly, to soften the impact of market downturns on endowment performance.”

BU’s performance is comparatively strong. The preliminary 2.9 percent return ranks Boston University in the top-quartile of colleges and universities of the Cambridge Associates Endowment Universe, which reported a median return of -1.3 percent. The national Standard and Poor’s 500 index yielded a return of -13.1 percent in the same period, and the international MSCI AC World index yielded -9.1 percent.

The University’s endowment is invested in many types of assets, and Peedin and the Investment Committee have spent the past year setting new targets for asset allocation, a strategy that includes assets that guard against what Peedin, referring to this week’s Wall Street downturn, describes as “destructive macroeconomic conditions.” The new targets include a reduced allocation to U.S. equities and emerging markets, and increased exposure to alternative assets and real assets, which include real estate partnership investments and natural resource equities.

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 2006 it was $946.4 million.

While this year’s return was down from the 2006 and 2007 returns of 20 percent, Peedin says the University’s long-term strategies are expected to provide steadier year-to-year returns going forward.

“There is no doubt that these are complicated and challenging times for our economy, our financial system, and — closer to home — our endowment. But every crisis and market reordering brings different dynamics, and in the end, different opportunities,” she says. “While these markets are extremely painful to weather, we are confident that some of the strategies that we have included or enhanced over the last year are poised to stand us in better stead in turbulent market environments.”

Jessica Ullian can be reached at jullian@bu.edu.