Princeton University has cut the long-term return assumption on its $36bn endowment, as heavy exposure to crowded private equity investments weighs on its ability to repeat its past performance.
Christopher Eisgruber, Princeton’s president, said in his annual state of the University letter on Monday that “changing market fundamentals”, driven by excess capital in limited investment opportunities, would cause a persistent decline in long-term returns. The endowment has lowered its return expectations from 10.2 per cent to 8 per cent, though even the lower assumption “might be considered aggressive”.
The reduction could translate into $11bn less in endowment assets over the next decade, a figure exceeding the proceeds of the university’s past two big fundraising campaigns combined. As a result, Princeton had sought 5 to 7 per cent spending cuts across the university over the past 12 months, said Eisgruber, adding that the long-term decline in endowment return would require “more targeted, and in some cases deeper, reductions over a multiyear period”.
Princeton’s move underscores the challenges facing the endowment investment model, which relies heavily on illiquid but historically lucrative private assets. Higher interest rates have slowed exits in the short term by curbing initial public offerings and acquisitions, while an oversupply of capital has intensified competition for deals, compressing returns over the longer run.