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Endowment dips to $8.5 billion in ‘extraordinarily volatile’ investment year

Duke’s endowment fell slightly after reaching a record high last year, in a year that saw stock market volatility due to the effects of the COVID-19 pandemic. 

The annual report on the endowment, reviewed by members of the Board of Trustees at their quarterly meeting, showed that the endowment’s value stood at $8.5 billion as of June 30, a decline from last year’s record-high $8.6 billion, according to a news release about the meeting.

The endowment’s long-term pool, the main investment vehicle for its assets, saw a 0.7% return, according to the news release. Meanwhile, the University drew $600 million for financial aid, faculty salaries, facilities and other expenses from the endowment and other investments. 

The change in the endowment reflects changes in the market, President Vincent Price told The Chronicle on Sunday.

“We have not increased the payout [from the endowment], but we haven't decreased it either,” Price said. “And so in a year where you have essentially close to a flat return on the endowment, when you pay out at a 5% rate, obviously, you're going to essentially lower the endowment by that amount.” 

Vice President for Finance Tim Walsh told The Chronicle last year that the Duke University Management Company, which manages the endowment, aims for an average return of about 7.5%, which lets Duke spend about 5% of the endowment’s value while accounting for inflation. 

The endowment recorded a 6.9% annual return last year and a return of 12.9% in 2018.

The news release notes that the dip in the endowment comes during an “extraordinarily volatile year for investors.” The past months have seen extreme stock market swings, spurred by the economic effects of the coronavirus pandemic.

The pandemic poses challenges for Duke’s other revenue sources as well. Price estimated in a May news release that loss of revenue could be as high as 15% of the University’s annual operating budget, or between $250 million and $350 million.

He wrote then that Duke would save $150 million to $200 million over the next year by taking a number of steps to cut costs, including temporarily freezing hiring and suspending its contributions to a retirement plan for faculty and staff.

Revenue losses have been “a little bit larger” than predicted, Price said Sunday, but savings have been higher than predicted as well. He noted that Duke has also seen an increase in financial aid demand during the pandemic. 

“We had a very strong year last year in philanthropy, which was good to see,” Price said. “So we're not in any sort of existential crisis, but we're under a lot of pressure, financial pressure, to be sure, and I think that the increases in demand for financial aid are likely not to be short term. They're likely to be with us for a while.”

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