Key Takeaways
- • Boston University's endowment delivered a 20.0% net investment return for fiscal year 2006, significantly outperforming the 12.8% average for peer institutions with endowments in the $500 million to $999 million range.
- • The endowment grew to $946.4 million by June 30, 2006, driven by strong performance in emerging market equities (48.3%), foreign developed-country equities (22.0%), and hedge fund investments (18.2%).
- • BU's Trustee Investment Committee outperformed benchmark indices in all but two asset categories, with foreign equity returns of 22.0% compared to a 16.9% benchmark, demonstrating effective strategic asset allocation decisions.
- • The endowment is managed by external investment managers under oversight of BU's administration and the Trustee Investment Committee, which determines asset allocation ranges across multiple asset classes.
Summary
Boston University's endowment generated a 20.0% net investment return for fiscal year 2006, substantially exceeding performance benchmarks for comparable institutions. According to the National Association of College and University Business Officers (NACUBO), the average return for endowments ranging from $500 million to $999 million was 12.8%—meaning BU outperformed its peer group by 720 basis points. This exceptional performance resulted in an endowment value of $946.4 million as of June 30, 2006.
The superior returns were primarily attributed to strategic positioning in three key asset classes. Emerging market equities generated a 48.3% return, while foreign developed-country equities delivered 22.0%—exceeding their benchmark index return of 16.9% by 510 basis points. Hedge fund investments contributed 18.2% to overall returns, demonstrating the value of alternative investment exposure within the endowment's diversified portfolio.
BU President Robert Brown and Vice President for Financial Affairs Kenneth Condon credited the Trustee Investment Committee's asset allocation decisions as the primary driver of outperformance. Condon emphasized that "returns are driven pretty much by asset allocations," and noted that the committee deserved credit for strategically overweighting specific asset classes that subsequently delivered outsized gains. The endowment's governance structure employs external investment managers while maintaining oversight through BU's internal staff and the Trustee Investment Committee, which establishes allocation ranges across asset categories.
The 2006 Annual Report documented that BU's endowment outperformed its benchmark indices in all but two categories, underscoring the effectiveness of the institution's investment strategy and manager selection process. This track record reflects disciplined portfolio construction and tactical positioning within a multi-asset investment framework during a favorable market environment for equities and alternative investments.
The superior returns were primarily attributed to strategic positioning in three key asset classes. Emerging market equities generated a 48.3% return, while foreign developed-country equities delivered 22.0%—exceeding their benchmark index return of 16.9% by 510 basis points. Hedge fund investments contributed 18.2% to overall returns, demonstrating the value of alternative investment exposure within the endowment's diversified portfolio.
BU President Robert Brown and Vice President for Financial Affairs Kenneth Condon credited the Trustee Investment Committee's asset allocation decisions as the primary driver of outperformance. Condon emphasized that "returns are driven pretty much by asset allocations," and noted that the committee deserved credit for strategically overweighting specific asset classes that subsequently delivered outsized gains. The endowment's governance structure employs external investment managers while maintaining oversight through BU's internal staff and the Trustee Investment Committee, which establishes allocation ranges across asset categories.
The 2006 Annual Report documented that BU's endowment outperformed its benchmark indices in all but two categories, underscoring the effectiveness of the institution's investment strategy and manager selection process. This track record reflects disciplined portfolio construction and tactical positioning within a multi-asset investment framework during a favorable market environment for equities and alternative investments.
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