March 7, 2001:
Five years ago, for our
February 21, 1996 issue, PAW sent Allan Demaree 58, a former
executive editor at Fortune, into the offices of Princetons
investment managers to find out how they and Princetons
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.
Princetons $4-billion endowment was the fourth largest in
the country, behind Harvard, the University of Texas system, and
Yale. Over the preceding 19 years, Princetons endowment had
returned 14.2 percent per year, beating the Standard & Poors
500 Index by a little more than half a point. The one-year-old Nassau
Capital, the alternative asset arm of Princo, Princetons
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.
Henry Payne '64 and writer Allan Demaree '58 also teamed up
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 Shapiros retirement
as Princetons 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. Princetons
endowment has doubled, standing at $8.4 billion. For the rest of
the numbers, youll 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.
and easy as it is to look back from todays dizzying
heights, its the difficult job of Princos 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?
Its impossible to know if in another five or 10 years the
endowments managers will be reaping praise or scorn.
Still, whats 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.