Page 2 - Caltech Endowment Brochure_FY19

CALTECH ENDOWMENT REPORT 2019 CALTECH ENDOWMENT REPORT 2019

SKILLED INVESTMENTS IN WORLD-CHANGING DISCOVERY

I am very pleased to report of solid performance,
that Caltech’s endowment “The social object of skilled particularly compared to our
investment pool grew by over benchmarks and peers. On
$85 million to $2.97 billion investment should be to a consolidated basis, the
during fi scal year 2019.* defeat the dark forces of time endowment investment pool
Contributing to this growth generated annualized returns
were the continued success and ignorance which envelop of 5.4 percent, 10.2 percent,
of Caltech’s Break Through our future.” 7.3 percent, and 8.3 percent,
campaign, which generated respectively, for the one-,
cash receipts of $122 million –John Maynard Keynes, from The three-, fi ve-, and 10-year
for endowment, other General Theory of Employment, periods ended September 30,
additions of $25 million, and Interest and Money (1936) 2019. These fi gures exceeded
investment returns of our internal investment
$150 million. Infl ows were policy benchmark returns by Students gather on the lawn near the
offset by payout of $150 million in support of 3.0 percent, 2.9 percent, 2.1 percent, and 1.7 Hameetman Center. Named in honor of
Institute activities and other withdrawals of percent per annum, respectively. Importantly, trustee Fred Hameetman (BS ’62) and his
wife, Joyce, the new campus hub opened
$61 million. Over the last 10 years, growth in over the last 10 years, our investment returns in February 2019.
the endowment investment pool has allowed have exceeded the endowment payout plus the
Caltech to increase its annual payout to support average annual increase of 1.8 percent in CPI,
Institute activities by over 60 percent, from allowing us to grow the existing endowment
$94 million in fi scal year 2010 to $150 million funds on a real (after-infl ation) basis.
in fi scal year 2019, with almost $1.2 billion in
aggregate annual payout to the Institute during During our 2019 fi scal year, aggregate benchmark by 2.6 percent. Our large marketable performance placed it in the top decile for the
that time. performance of public equities in the global alternatives portfolio delivered a disappointing one-, three-, and fi ve-year periods, respectively.

markets was dominated by U.S. large-cap 2.7 percent return but still beat its benchmark by Additionally, for the first time in recent
In my comments last year, I noted the peril of growth stocks like Alphabet, Amazon, Apple, 2.3 percentage points. On the negative front, our history, we moved into the top quartile for
focusing on short-term returns. This could not Facebook, Google, and Netfl ix. Given the private energy investments continued to struggle. the 10-year period.
have been more true during fi scal year 2019. endowment’s positioning toward non-U.S., The portfolio, which now represents just 5.4
During the fourth calendar quarter of 2018 value, and quality stocks, it is a testament to percent of the endowment investment pool, lost I will close by referring to the quote from John
(the fi rst quarter of Caltech’s fi scal year), the our managers’ skills that we ended the year 16.8 percent of its value, trailing its benchmark Maynard Keynes. In the context of his writing,
S&P 500 fell 13.5 percent. Over the next three just under our public equities benchmark, by a full 7.0 percentage points. The decline was he was probably referring to the diffi culty in
quarters (ended September 30, 2019), the S&P while for longer time periods we remained driven, in part, by a 26 percent decline in oil prices predicting the outcomes of investments and the
500 recovered 20.5 percent, resulting in a four- well ahead of the benchmark, after fees. during the fi scal year. Unfortunately, however, inherent risks confronting market participants. In
quarter return of 4.1 percent for the fi scal year. When one considers that a recent study found due to excess leverage incurred by some of a different context, though, the Investment Offi ce
Moving just one quarter forward, however, during that, over the 10 years ended December 31, our private energy managers and other industry is honored to contribute to an Institute ecosystem
the four quarters ended December 31, 2019, the 2018, 85 percent of active U.S. large-cap dynamics, it is likely that much of the valuation that strives to “defeat the dark forces of time
S&P 500 returned 31.2 percent. This is a helpful managers underperformed the S&P 500, and decline will not be temporary. We continue to and ignorance which envelop our future” through
reminder that, in the investment world, any 80 percent of all active managers in all sectors re-evaluate our energy investment strategy as the world-changing science and discovery.
comparisons have substantial start- and end- underperformed their respective benchmarks, supply–demand dynamic for conventional energy
point sensitivity, and that to focus on any one our long-term outperformance is notable. quickly evolves. Thank you, as always, for your continued
short period of time is pure folly. With a perpetual support of Caltech and its endowment.
investment horizon, when we think about how Some sectors continued to perform exceedingly Caltech’s performance as compared to our
to position Caltech’s endowment, or which well: Our private equity portfolio, which we have college and university endowment peers was
managers to select, we are always trying to look been growing carefully and systematically over very good. According to Cambridge Associates,
at least fi ve to 10 years (or more) into the future. the last fi ve years, generated a 14.5 percent among the approximately 140 institutions Scott H. Richland
return, beating its benchmark by 2.9 percent. of higher education that submitted data to Chief Investment Offi cer
With the foregoing in mind, the endowment Similarly, our real estate portfolio performed well, Cambridge for the period ended September 30, January 26, 2020
investment pool enjoyed another fi scal year delivering an 8.7 percent return and beating its 2019, Caltech’s endowment investment pool
* October 1, 2018, through September 30, 2019
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