Wesleyan’s Endowment Performs in Top Quartile

In the year ending March 31, 2005, Wesleyan’s endowment has performed in the top quartile of schools with similar-sized portfolios, according to data collected by the Office of Finance and Administration. Wesleyan’s return of 11.7 percent was not only 2.2 percentage points above the 25th percentile for peer schools, it was almost twice the S&P 500 return for the same period.

These results reflect a series of improvements in Wesleyan’s portfolio management, according to Vice President for Finance and Administration Marcia Bromberg.

In 1997 the university developed new endowment guidelines that divided the activities of the Wesleyan Board of Trustees’ Portfolio Subcommittee, into asset-class working groups. The Board engaged alumni who are experts in the various asset class fields—such as marketable equities, fixed income, private equity and hedge funds—to participate in choosing and reviewing managers and finding investment opportunities. Wesleyan hired a professional director of investments, Tom Kannam, to work with the Portfolio Subcommittee to identify, vet and monitor manager results. Kannam has provided data and detailed analysis that allow the Portfolio Subcommittee to better assess asset allocation decisions and identify segments of the market ripe for investment opportunities.

Wesleyan’s new strategic plan recognizes the importance of adding new gifts to the endowment. The university has set an annual goal of new gifts equal to 1.5 percent of beginning endowment value. That goal will increase over the next several years to 3 percent of beginning endowment value.

While Wesleyan’s endowment lags those of competitors among the elite liberal arts colleges, the reason has never been investment performance, according to Bromberg. To understand why the university’s endowment fell relative to this group since the early 1980s, Bromberg’s staff compared Wesleyan’s endowment over a 15-year period (1983-1998) with six of its strongest peer liberal arts colleges. Wesleyan began the period with the second-largest endowment and ended with the smallest. Reviewing investment results, endowment spending formulas and new gifts to the endowment, it became clear that Wesleyan’s average to above-average investment performance was not the reason the endowment lost ground. Nor was spending, although the university spent marginally more than its peers. The key to the relative decline was that the other schools added significant new gifts to their endowments during this period and Wesleyan did not.

The recent success of the university’s fund-raising efforts, as evidenced by the $281 million Wesleyan Campaign, and the commitment to building the endowment through new gifts will be crucial to strengthening Wesleyan’s relative financial position, according to Bromberg. Improved investment performance will both maximize the leverage of gifts to the endowment and increase donor confidence in Wesleyan, she said.