The Princeton University Investment Company (Princo) manages Princeton’s Endowment, which stood at $23.8 billion as of June 30, 2017. Princeton’s Endowment ranks among the five largest university and college endowments in the United States. Measured per-student, it is the largest. Endowment proceeds provide approximately half of the revenues for Princeton’s operating budget, a higher share than for any of the University’s peers. Over the past 20 years, Princeton’s 11.5% annual return ranks in the top 1% among all institutional investors.
PRINCO’S ORGANIZATIONAL MODEL
Princo, which is a University office, was established in 1987, when the Endowment assets were $2.2 billion. Princo is organizationally distinct from the University, but not a separate legal entity. Princo staff members are University employees, and Princo‘s President reports both to the University President and to the Chair of the Princo Board of Directors. The Chair and the other Directors are a vital part of the investment process, focusing on “big picture” policy matters.
While Directors provide policy guidelines and share investment insight from their respective areas of the financial world, Princo staff is fully empowered on all matters of execution, acting independently within policy guidelines. In particular, staff has been given authority to select and terminate external managers, and to shift assets to focus the portfolio on the most promising sectors. This unique authority provides Princo with a competitive advantage relative to most peer endowments, where staff is typically required to seek approval for manager selections and asset shifts. Additionally, Princo staff works closely with the University’s Office of the Vice President for Finance and Treasurer, which has responsibility for finance and accounting.
Organizationally, employing external management allows greater flexibility and responsiveness, as Princo can shift asset allocation and strategy without the friction of internal personnel changes. Thus, Princo can assess the evolving investment environment with a vision that is unclouded by concerns over what to do with internal staff whose security selection expertise may be in areas that have become unattractive. Importantly, new opportunities can be exploited quickly, without having to wait for the development of internal expertise.