Duke posts 13.5 percent gain on endowment

The University reported a 13.5 percent return on its endowment investments for fiscal year 2013, raising the endowment's value to $6 billion from $5.6 billion.

The return was significantly higher than fiscal year 2012, when investments only returned 1 percent and the value actually declined due to withdrawals for the operating budget. For fiscal year 2013, which ends June 30, endowment gains funded approximately 16 percent of the University's $2.2 billion in operating revenues, according to draft financial statements provided by administrators.

The endowment is professionally managed by DUMAC, an investment group controlled by the University.

"Duke is known for its many great assets, and DUMAC is one of those assets," said Board of Trustees Chair David Rubenstein, Trinity '70, who is co-CEO of the Carlyle Group, one of the largest private equity firms in the world.

Duke's endowment slightly outperformed several other peer universities, with Harvard University and Dartmouth College registering an 11.3 percent and 12.1 percent return, respectively. Endowments and foundations posted a median 11.28 percent return on investments for fiscal year 2013, according to Wilshire Associates.

Major market indices generally yielded a higher return in the most recent fiscal year.
The S&P 500, which tracks U.S. equities, saw an 18.5 percent gain for the period ending June 30. The MSCI All Country World Index, a global equity measure, rose 16.6 percent.

On an longer-range annualized basis, Duke's endowment has beaten a traditional 70 percent stock/30 percent bond portfolio, generating a 10.6 percent return on a 10-year annualized basis for fiscal year 2013.

Universities, under the "endowment model," have become known for investing more heavily in alternative, more illiquid assets, including private equity, real estate and hedge funds, to generate above-market returns. The value of Duke's holdings in alternative assets represented nearly half the value of its total investments in fiscal year 2013.

The endowment's value was also buoyed by gifts, largely through the Duke Forward capital campaign, that totaled $411 million in the most recent fiscal year. The campaign has raised more than half of its $3.25 billion goal.

Stabilizing finances amid uncertainty

The University has largely recovered from the 2008-09 recession, according to a press release, during which investments fell nearly 25 percent and the endowment's value fell to $4.4 billion.

Duke's conservative use of endowment funds, however, left the University better positioned during the downturn compared to other peer institutions, Executive Vice President Tallman Trask wrote in his introduction to the financial statements.

In fiscal year 2013, University's operating revenues increased 3.8 percent. Grants and contracts, which provided 46 percent of revenue, were up approximately 3 percent.

Revenue from government grants and contracts dipped slightly from fiscal year 2012, partly due to the end of funding from the 2009 stimulus program. The decline in government dollars was offset by a $30 million increase in grants and contracts from private entities.

Operating expenses for the University also rose 2.4 percent. Salaries, wages and benefits for employees made up nearly 60 percent of expenses.

The economic and political environment could place some pressure on institutional finances, particularly with Duke University Health System and the implementation of the Affordable Care Act.

The University is not immune to the current partisan battles over the federal budget and debt ceiling, Rubenstein noted, calling the government shutdown "an embarassment" for the United States.

Rubenstein added, however, that he predicted both parties will reach a deal on both a federal budget and the debt ceiling this week because Republicans will decide that coming to a resolution is in their interest.

The compromise will likely only fund the government for the remainder of the year, Rubenstein said.

A long-term solution based on a "grand bargain" between Democrats and Republicans would better serve the University's interests, President Richard Brodhead said, because it would resolve across-the-board cuts created by sequestration that would reduce research funding.

"Given the level of partisanship, a grand bargain does not appear likely in the foreseeable future," he added.