The Dartmouth College Budget

November 2004

The Endowment:

The Dartmouth endowment's market value increased by $333.1 million after a very strong 18.6 percent return. Distribution from the endowment to support operations approximated 5.4 percent of the beginning of year endowment market value.   

The endowment is made up of more than 5,000 individual funds. About 23 percent of the endowment is restricted to the professional schools. Of the remainder, most is restricted to specific programs, activities, and departments within the Arts and Sciences, the Hopkins Center, the Hood Museum, the Library, and the various academic centers. Approximately 19 percent of the total is unrestricted to the College; 17 percent is restricted to financial aid.

Effective with the 2005 fiscal year, the Board of Trustees adopted a new formula for determining the annual distribution from the endowment. The new blended formula is designed to moderate the volatility of endowment distributions to department and project budgets during periods of large positive or negative market swings.  It is intended to provide a consistent, smoother flow of funds to the operating budget while preserving intergenerational equity over time.  The new distribution formula follows the following calculation:

• 70 percent of the annual endowment distribution is based on the prior fiscal year's distribution adjusted for inflation
• 30 percent is based on a percentage of the four-quarter average endowment market value as of December 31 of the prior fiscal year (i.e. 12/31/03 for FY2005 distribution).

The investment return of 18.6 percent in fiscal 2004 increased the College's endowment to $2.45 billion. New endowment gifts and investment returns have restored the total endowment value to within 1.5 percent of its June 30, 2000 peak, even following distribution of $460 million for operating expenses during the past four fiscal years. During these four years of extremely challenging worldwide financial markets, the College has been served well by staying the course with its proven investment management strategies under the oversight of the Investment Committee of the Board of Trustees. Prudent management of the endowment includes making strategic investment allocation decisions and distributing a portion of the endowment for current use, while preserving the purchasing power of the endowment for the benefit of future generations of Dartmouth students and faculty.

The positive investment return this year resulted from a strong rebound in equity markets around the world, combined with strong relative performance generated by the assets held within the College's portfolio. This 18.6 percent return compares favorably to the portfolio's main investment benchmarks. A "70/30 domestic portfolio" consisting of 70 percent invested in the S&P 500 Equity Index and 30 percent in the Lehman Brothers Aggregate Bond Index produced a 13.3 percent return for fiscal 2004. A more diversified benchmark that incorporates small capitalization stocks, international equities and real estate in addition to the S&P 500 and the Lehman Aggregate index, and which better reflects the composition of Dartmouth's portfolio, produced a 17.6 percent return for the year.

Compared to other schools, Dartmouth's fiscal 2004 return ranks in the top quartile within a universe of 129 college and university endowments as compiled by Cambridge Associates, an independent consultant.  The median fiscal 2004 return in the Cambridge Associates endowment universe was 16.9 percent.

Dartmouth's endowment has also produced solid investment returns over longer time periods.  While the last three years have been difficult, for the five-year period that ended June 30, 2004, Dartmouth's portfolio generated a 10.7 percent annualized return, while over the same period the S&P 500 declined by 2.2 percent annually.  For the 10-year period ending on June 30, 2004, Dartmouth's endowment returned 14.5 percent, while the S&P 500 produced returns of 11.9 percent for the corresponding period.  For the most recent five and ten-year periods, Dartmouth's investment returns rank in the top 10 percent of the Cambridge Associates endowment universe.

Dartmouth's endowment is invested in a highly diversified portfolio comprised of "traditional" assets including publicly traded stocks and bonds, and "alternative" assets including hedge funds, real estate, venture capital funds and other private equity funds.  Dartmouth's portfolio is broken into three major asset categories; Equities, Fixed Income and Real Assets.  In fiscal 2004, the Real Asset segment generated the strongest performance with a 34.7 percent aggregate net return for the year.  Real Assets consists of investments in private real estate, oil and gas funds and publicly traded REIT (real estate) securities. Within the equity sector, International Equity was the best performing sector producing a 31.7 percent return.  Also noteworthy was the return to profitability of the Private Equity sector, which generated a 16.8 percent net return in fiscal 2004 after three consecutive down years.  The Fixed Income sector of the portfolio was the laggard in the portfolio recording a 1.6 percent return, reflecting the rise in interest rates that took place during the year.               

A pamphlet summarizing the College's endowment management and utilization policies is available upon request from the Office of Public Affairs.