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 cut could translate into $11bn less in endowment assets over the next decade, a figure exceeding the proceeds of the university’s last two big fundraising campaigns combined. As a result, Princeton has 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 will require “more targeted, and in some cases deeper, reductions over a multiyear period”.