Tufts' endowment, in line with a national trend among universities, saw a sharp increase in investment returns in fiscal year 2010 as financial markets began to recover.
Returns on university investments rose to an average of 11.9 percent, a significant improvement over average returns from fiscal year 2009, which came in at negative 18.7 percent, according to the 2010 National Association of College and University Business Officers (NACUBO)-Commonfund Study of Endowments (NCSE) released Jan. 27. The same study said the increase fell short of the 17.2 percent average in fiscal year 2007.
"This is a pretty huge and welcome turnaround for endowment performance," NACUBO's Director of Research Policy and Analysis Ken Redd told the Daily.
Tufts' investment performance stood at slightly over 12 percent, close to the industry average, according to information provided by the Tufts Finance Division.
The market value of the university's overall endowment also grew by 10 percent, according to the NCSE, and Director of Public Relations Kim Thurler said that it was worth $1.366 billion as of Dec. 31.
This contrasts sharply with the 23.7 percent decline in market value that Tufts' endowment experienced the year before, according to the NCSE data. Tufts attributed this change to the improving economic climate.
"Tufts benefited from the upward trend in the financial markets and overall economy," the finance division said in an e-mail provided to the Daily by the Office of Public Relations. "Our fundamental investment approach did not change. We continued the strategies that have stood us in good stead over the long term."
Redd likewise credited the positive trend to the improving financial situation and said there were no significant shifts in investment practices.
"The stock market certainly did better in fiscal year 2010 than fiscal year 2009, and that was the primary driver for improved endowment performance," he said. "Most endowments held pretty steady in terms of allocations; most institutions did not make any major changes."
Joshua Humphreys, the lead author of an endowment study recently released by the Tellus Institute, however, questioned recent investment behaviors by colleges and universities that he said were risky and opaque.
"We've identified a vast sea of change in the way that endowments are invested; they are increasingly the most opaque and illiquid and high-risk type of markets," Humphreys told the Daily. "These types of investment vehicles are organized in a way to avoid disclosure — that seems troublesome in many ways for a nonprofit to be actively avoiding disclosure."
He cited in particular the use of the shadow banking system, which included Bernard Madoff's Ponzi scheme. Tufts lost $20 million by investing in the Ascot Group, which in turn invested with Madoff.
Humphreys called attention to longer-term returns, noting that while last year saw an average 12- percent return, the same NCSE data showed that ten-year returns ranged from 2.8 to 5 percent, barely outpacing inflation.
"One-year returns of 11 to 12 percent are not really that impressive when you had a 20 to 30 percent decline in the previous year; you're still digging out of a big hole," he said.
Sophomore Caroline Incledon, leader of Students at Tufts for Investment Responsibility, expressed her hope that these positive results would encourage the university to more extensively consider investment strategies that are environmentally and socially responsible.
"Hopefully Tufts will see improved performance and that will give the administration confidence to pursue alternative strategies over purely returns-focused ones," she said, emphasizing that such strategies would not lead to declining returns.
"We are hoping that just because the endowment has increased does not mean that things slow down, but that it will actually spur the responsible investment movement," Incledon continued.
Humphreys echoed this sentiment.
"The problem and the trap is that everyone wants to focus on financial performance; the whole point is to think beyond performance of the endowment and realize that the endowment has a social function," he said.
