March 7, 2001: From the Editor

Five years ago, for our February 21, 1996 issue, PAW sent Allan Demaree ’58, a former executive editor at Fortune, into the offices of Princeton’s investment managers to find out how they — and Princeton’s vast endowment — were performing.

The U.S. economy was healthy. Unemployment stood at 5.5 percent. The Dow Jones industrial average had closed 1995 at 5,117.12, up 33.5 percent for the year — the best return in 20 years. And the NASDAQ composite index was hovering around 1,000.
Around Princeton, Demaree found, the news was similarly upbeat. Princeton’s $4-billion endowment was the fourth largest in the country, behind Harvard, the University of Texas system, and Yale. Over the preceding 19 years, Princeton’s endowment had returned 14.2 percent per year, beating the Standard & Poor’s 500 Index by a little more than half a point. The one-year-old Nassau Capital, the “alternative asset” arm of Princo, Princeton’s investment group, had returned a substantial 19.6 percent. And then-Princo chair Richard Fisher ’57 felt comfortable in expressing hope for an annual increase in endowment value of 2 percent (after spending and inflation for university operating expenses), which would have added a healthy $416 million to the kitty.

Illustrator Henry Payne '64 and writer Allan Demaree '58 also teamed up in 1996.

After the astounding run-up in the U.S. markets — the Dow stands near 11,000, the NASDAQ around 2,400 even after its recent slide — during the past five years, the announcement of Harold Shapiro’s retirement as Princeton’s president, and the extraordinary news that Princeton would add $57 million from the endowment to its operating budget, it seemed the ideal time to send Demaree back for another look.
From the vantage point of February 2001, the cheerful numbers and predictions of 1996 seem positively primitive. Princeton’s endowment has doubled, standing at $8.4 billion. For the rest of the numbers, you’ll have to read the story, but suffice it to say that the returns are spectacular enough to suspect Mr. Fisher of sandbagging in his predictions.

But entertaining — and easy — as it is to look back from today’s dizzying heights, it’s the difficult job of Princo’s decision-makers to look forward. Right now many of the investment decisions of the past decade look inspired, but there were certainly times when an inside analyst might reasonably have wondered, inspired by what? It’s impossible to know if in another five or 10 years the endowment’s managers will be reaping praise or scorn.

Still, what’s important in February 2001 is that the university feels confident enough to start using the money to continue to make Princeton better. Regardless of what happens in the next economic cycle, Princo has to be pleased with that performance.