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MIT Endowment Up 14 Percent

By Brian Keegan

MIT’s endowment increased to $6.7 billion last year, a 14.4 percent increase over fiscal year 2004, with a 17.6 percent rate of return on investments. The rate of return is comparable to those reported by other universities with top endowments. Last year, MIT’s rate of return was 18.1 percent.

MIT’s endowment, the sixth largest among U.S. universities, has suffered from poor investment performance in a weak market since 2000. While the endowment was valued at $6.48 billion in 2000, it had suffered a 20 percent decline to $5.13 billion by 2003.

The Treasurer’s report for fiscal year 2005 highlights continued improvements in MIT’s financial position after three years of declining returns from 2001 to 2003.

MIT has $10.8 billion in assets such as the endowment, pension plans, real estate, and other investments, and $2.2 billion in liabilities for total net assets of $8.6 billion, an 11 percent increase over last year.

The report gives credit for the increase to “gifts and investment gains being in excess of amounts distributed to operations.” Significant changes included a 10 percent increase in the value of MIT’s investments to $8.0 billion, while MIT reduced the collateral it owes to borrowers of its securities by 41 percent, or almost $260 million, from 2004.

Performance lags Harvard, Yale

In 2004, MIT had the sixth largest endowment behind Harvard, Yale, University of Texas, Princeton, and Stanford. Fifth-ranked Stanford’s 2005 endowment is still $5.7 billion larger than MIT’s. Among other top universities, Yale reported a rate of return of 22.3 percent, Harvard 19.2 percent, and Princeton 17 percent.

MIT Treasurer Allan S. Bufferd ’59 said in an e-mail that the MIT portfolio returned 15.5 percent annually for the 10 years ending June 30, 2005. “The MIT results were substantially above the college and university median for that period … [and] among the best performances of major college endowments for that ten year period.”

Despite some universities’ higher returns in recent years, some have questioned the wisdom of pursuing highly rewarding but risky investments.

William J. Hartnett PhD ’96 wrote in a May 2004 column in The Tech that MIT has “been overexposed to the volatile stock market” and has an endowment distribution strategy that transmits “fluctuations of the market to the budget.” He suggested “a target for portfolio volatility … only modestly above low risk bonds.”

Bufferd defended the Institute’s current investment strategy, noting that the bond market only returned 6.8 percent for the same period. “Dr. Hartnett’s fixed income approach would not have generated the 18.1 percent earned in fiscal 2004 nor the 17.6 percent return in fiscal 2005,” he said.

Bufferd said several types of investments such as domestic small capitalization equities, international equities in emerging country markets, real estate, private equity, hedge funds, and commodity or commodity-related assets contributed to the strong returns.