Endowment. On March 25, 1745, ten men executed pledges totaling 185 pounds «for the purpose of Erecting a Collegiate School in the province of New Jersey for the instructing of youth in the Learned Languages, Liberal Arts, and Sciences.» The pledges were made a year and a half before the first charter establishing the College of New Jersey was granted. The document provided that only the interest earned on the principal sum could be expended for current purposes: namely, the payment of the president’s salary and the salaries of tutors, and that the principal was to be continuously reinvested to generate income for the future. These modest pledges — whose value proved to be less than the president’s annual salary — marked the beginning of Princeton’s endowment, funds that in the mid-seventies totaled over $450 million.

The classic definition of «endowment» is a gift made on the stipulation that the principal be maintained in perpetuity and that only income from investment of the gift be expended. In addition to gifts of this nature, the University’s current endowment fund also includes gifts received without any such stipulation, and allocated by the trustees to function as endowment, as well as appreciation earned from the investment of endowment funds.

In absolute terms the Princeton endowment is one of the largest of any University in the country. Measured in terms of the size of the fund relative to the size of the University — for instance, by an approximate measure such as endowment dollar per student — Princeton’s endowment ranks as probably greater than that of any university but Harvard. The income generated annually from the endowment now constitutes about 16 percent of the University’s annual operating budget.

The endowment thus represents the legacy to the present of the past generosity of the University’s supporters. The growth of the endowment also reflects the skill and insight of the trustees in managing Princeton’s funds. In the late 1940s and early 1950s, when conventional wisdom indicated that an endowment fund should be invested largely in fixed-income securities, Princeton increasingly allocated its endowment to equities, with a strong emphasis on growth-type stocks. Such investments have tended to produce higher rates of return than so-called income stocks or bonds. In 1940 only 27 percent of the market value of our endowment was invested in common stocks; today about 75 percent of the fund is in equities.

This investment strategy has yielded superior results. For instance, from 1958 through 1975, Princeton’s endowment earned more in capital appreciation and income than the stock market on average, a performance achieved by few institutional funds, college, corporate, or financial. A study by the National Association of College and University Business Officers shows that over a ten-year period ending June 30, 1975, Princeton’s endowment performance ranked fourth out of eighty endowment funds examined.

Policy for management of the University’s endowment is set by an Investment Committee of three trustees who constitute a subcommittee of the Finance Committee of the Board of Trustees. The University’s chief financial officer sits with the Investment Committee. For many years, the Investment Committee approved in advance the purchase and sale of all securities, aided by John W. Bristol & Co. Inc. which served as investment adviser to the Committee role that firm (and a predecessor organization) played since the mid-1930s. In the fall of 1977, the Investment Committee adopted a new procedure by which the committee concentrated on policy, delegating responsibility for the day-to-day selection of securities for the University s portfolio to four investment advisers: John W. Bristol and Herbert E. Gernert of New York, Robert E. Pruyne of Boston, and Mitchell Milias of Los Angeles.

Paul E. Firstenberg

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