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Endowment Increases to $8.4 Billion

By Manisha Padi

The MIT endowment increased an impressive 23 percent to a total of $8.4 billion during the past fiscal year, a significant improvement over last year’s gain of 14.4 percent. The increase of $1.7 billion is also unusual, since the rate of growth has outpaced that of other top universities this year — mostly due to increased returns from investments. In particular, growth in international equity, real estate values, and real assets have exceeded previous years, according to Seth Alexander, president of the MIT Investment Management Company.

This latest increase marks a clear recovery from the losses in 2000 to 2003. In 2000, the endowment was valued at $6.48 billion and dropped 20 percent to $5.13 billion in 2003. This was due mostly to a general decline in investment returns during that time. In comparison, Harvard University, which has the largest endowment of any university, had an increase of 16.7 percent this year, and a 15 percent increase last year, according to Harvard’s Office of News and Public Affairs. Yale University, with the second largest, had a 22.9 percent increase this year, and a 19.4 percent increase last year, according to Yale’s Office of Public Affairs. Although MIT outstripped these universities in percent growth this year, there are still large discrepancies in the relative sizes of the endowments themselves. As of June 30, 2006, Yale had a total endowment of $18 billion, while Harvard had an endowment of $29.2 billion. MIT had the sixth largest endowment in 2005, lagging behind Stanford University, the University of Texas system, and Princeton University.

The endowment consists of gifts from alumni and friends of MIT over the past 142 years, as well as returns on investments in stocks, bonds, and real estate. It is spent on expanding MIT’s campus, lowering tuition costs, and large increases allow for more spending. The projected spending in the 2007 fiscal year is $345 million, compared to $109 million 10 years ago, according to Alexander.

Universities with endowments over 1 billion dollars generally allocate a larger percent of assets to real estate, hedge funds, private equity, venture capital, and natural resources. Less focus is put on equity and fixed income, according to the 2005 National Association of College and University Business Officers endowment study, which compares countrywide endowment statistics.

Despite this year’s success, the focus remains on long term increases in the endowment. As of June 30, 2006, the ten year annualized rate of return on investments is 15.3%, and increasing this number is the primary focus of the MITIMCo, according to Alexander.