PhillyDeals: Penn fund lost, but other Ivies lost more

The University of Pennsylvania's endowment fund lost a lot less than other big Ivy League schools during the grim financial year ended June 30.

That's a switch for the better at the West Philadelphia campus of the city's biggest private employer, which trailed its peers during the financial-asset inflation of the mid-2000s.

Penn had ranked last among the 25 largest university endowments in the year ended June 30, 2008, with a 6 percent decline, according to the yearly performance numbers posted by the National Association of College and University Business Administrators.

But, after Harvard, Yale, and Princeton each projected losses in the 25 to 30 percent range for the year ended June 30, Penn president Amy Gutmann told staff and students Monday: "We expect the Penn

endowment to report a loss of 15.7 percent."

With larger endowments than Penn's roughly $5 billion, the Big Three Ivy League schools rely more than Penn on investment profits to pay their yearly bills and are now weighing new rounds of cost-cutting. Gutmann says Penn's 2010 budget is balanced.

The best-endowed Ivies and other elite institutions have for years been loading up on hedge funds and private equity, real estate, and commodities as prices rose, and dumping publicly traded bonds and U.S. stocks as their values languished.

But when stock prices collapsed last year, the market for private investments froze. Funds that needed to raise cash faced a tough choice of unloading stocks, or the illiquid "alternatives," at deep discounts. Either way, values collapsed.

Penn came late to private investments. Its reluctance dates to the 1980s and '90s, when John Neff, Radnor manager of the Vanguard Windsor mutual fund, backed by Paul Miller, then Penn's trustee chairman, donated his time to build the portfolio. Neff succeeded by buying value-oriented stocks in the long bull market. He resisted private funds.

Investment managers - many of them Penn graduates, some of them Penn board members - urged a review after Neff retired. In 2004 the school hired Stanford's Kristin Gilbertson as chief investment officer with a mandate to buy more private funds.

Last year the school allocated roughly a quarter of its money to hedge funds and less than 15 percent to private equity, real estate, and commodities. The rest stayed in stocks and bonds.

But Gilbertson's team balked at paying inflated mid-2000s prices for those private investments. Penn may have missed the party, but it was reluctant to settle for crumbs.

A lot of Penn money earmarked for alternatives ended up parked temporarily in U.S. Treasurys - unexciting but highly salable in crises. That's where it was when the markets collapsed last fall.

In her note to Penn staff and students Monday, Gutmann credited Gilbertson's team with protecting university assets from worse losses.

Gilbertson, in turn, credits Penn executive vice president Craig Carnaroli and finance vice president Steve Golding for parking other Penn cash in Treasurys instead of pumping it into more speculative investments, a temptation for cash managers in the go-go mid-2000s.

The conversion of Wendell Potter, who quit as for-profit health insurer Cigna's top spokesman to back President Obama's health-care proposals and denounce industry tactics, provoked dozens of readers to write.

Some were inspired by his story of visiting squalid Appalachian clinics and taking counsel from the Rev. Bill Golderer, who hosted Wednesday's Center City town-hall health-care forum by Rep. Joe Sestak (D., Pa.).

Others asked me whether the veteran PR man merely changed clients, from investor-owned Cigna to his new Democratic allies and the Center for Media and Democracy, where Potter's now a consultant.

So I asked Potter. "My compensation at Cigna was in the six figures," he told me. "Today I make a fraction of what I made as a flack. More like journalists' wages.

"That's fine, because money can't buy a good night's sleep."

(An earlier version of this column inaccurately stated the center was supported by George Soros. The actual funders are listed here.)