Navigating Change: An Examination of Princeton University's Endowment Performance and Future Strategies
Princeton University, a renowned institution with a substantial endowment, is currently navigating a complex financial landscape shaped by both economic shifts and evolving tax policies. This article delves into the performance of Princeton's endowment, the challenges it faces, and the strategic adjustments the university is undertaking to ensure its continued excellence.
Princeton's Endowment: A Historical Overview
The Princeton University Investment Company (Princo) manages Princeton’s Endowment, which stood at $36.4 billion as of June 30, 2025. Princeton’s Endowment ranks among the five largest university and college endowments in the United States. Measured per-student, it is the largest. Established in 1987 when the Endowment assets were $2.2 billion, Princo operates as a University office, organizationally distinct from the University, but not a separate legal entity. Princo staff members are University employees, and Princo’s President reports both to the University President and to the Chair of the Princo Board of Directors. While Directors provide policy guidelines and share investment insight from their respective areas of the financial world, Princo staff is fully empowered on all matters of execution, acting independently within policy guidelines. In particular, staff has been given authority to select and terminate external managers, and to shift assets to focus the portfolio on the most promising sectors. This unique authority provides Princo with a competitive advantage relative to most peer endowments, where staff is typically required to seek approval for manager selections and asset shifts. Organizationally, employing external management allows greater flexibility and responsiveness, as Princo can shift asset allocation and strategy without the friction of internal personnel changes. Thus, Princo can assess the evolving investment environment with a vision that is unclouded by concerns over what to do with internal staff whose security selection expertise may be in areas that have become unattractive.
The endowment provides about two-thirds of Princeton’s net annual operating revenues. Endowment payouts also cover almost 70% of undergraduate financial aid and 53% of the overall student aid program, which benefits about 70% of undergraduates and virtually all graduate students, according to the University.
Recent Endowment Performance
Princeton’s endowment generated an 11.0 percent investment gain over the 2025 fiscal year that ended June 30, University spokesperson Michael Hotchkiss said in a statement Friday. Princeton’s results are the second lowest of the six Ivy League schools who have released endowment results for this year - although the returns have all been tightly clustered. Brown generated 11.9 percent, Columbia 12.4 percent, Dartmouth 10.8 percent, Harvard 11.9 percent, and UPenn 12.2 percent. The Princeton University Investment Co. (Princo) reported a historic 46.9% return on endowment investments in 2021; since then, Princo reported losses of 1.5% and 1.7% in 2022 and 2023 and a 3.9% gain in 2024. The average annual return on the endowment has been 9% for the last 10 years and 9.5% over the last 20 years.
However, Princeton’s modest investment gain also fell below MPI’s expected return of 6 percent for the university, and significantly lagged the global 70/30 benchmark, which returned 14.2 percent for the fiscal year. This follows Princeton’s fiscal 2023 loss of 1.7 percent, which left it at the bottom of the Ivy League, although still faring better than MIT’s 2.9 percent loss during the same period.
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Factors Affecting Returns
An overallocation to venture capital and emerging markets and a lack of sufficient exposure to surging tech stocks drove down Princeton’s endowment returns. The New Jersey-based university’s $34.1 billion endowment returned 3.9 percent for the fiscal year ending June 30, well below its Ivy League peers. Princeton’s return is the lowest among Ivy League and other elite endowments tracked by Markov Processes International.
Princeton’s Ivy-lagging return, however, is not entirely surprising. MPI’s analysis indicates that Princeton's endowment has a target allocation of 8 percent to emerging markets equities, slightly above the Ivy League average of 6 percent. And while EM stocks slightly outpaced foreign developed stocks in fiscal 2024, they delivered a fraction of the S&P 500’s 24.6 percent return. Additionally, Princeton’s exposure to real estate - in line with the elite endowment average - likely weighed on returns, as Cambridge Associates’ Real Estate Index fell for the second consecutive year, down 4.2 percent.
The Impact of the Endowment Tax
Congress initially set the endowment tax on private colleges’ and universities’ investment earnings at 1.4% in 2017 during President Donald Trump’s first term. Last July, Congress included significant hikes in that rate in its tax-and-spending bill, which the White House championed. The new structure includes rates of 1.4%, 4%, and 8%, depending on each school’s endowment size and student population. The new tax law applies to private, nonprofit colleges and universities with minimum endowments of $500,000 to $750,000 per student. Schools with endowments of $750,000 to $2 million per student will pay a 4% tax, and those with endowments of more than $2 million per student will pay 8%. Colleges and universities with a total enrollment of 3,000 or fewer students are exempt from the new tax rates, which go into effect this year. The American Enterprise Institute estimates that about 20 universities will be subject to the endowment tax in the first year. Harvard, Princeton, MIT, Stanford, and Yale, all of which have endowments worth tens of billions of dollars, will be taxed at the highest rate.
Princeton University President Christopher Eisgruber lobbied members of Congress repeatedly to deter an increase in the endowment tax on colleges and universities. Instead, when the One Big Beautiful Bill Act passed last summer, Princeton became one of a handful of schools whose endowment tax ballooned. Now, President Eisgruber is preparing his institution for change as it prepares to pay an endowment tax of 8% on net investment earnings next year, up from 1.4%. He’s asked department heads to make budget cuts and says more could come. He announced this month that over the next decade, Princeton expects to lose $11 billion in endowment investment earnings.
University Responses to the Tax
After news of the new tax rate hit, Stanford University announced that it would lay off 363 people. Other schools have taken similar measures. Dr. Cooley at Yale says the Graduate School of Arts and Sciences now has a smaller budget as a result of the new endowment tax. University officials estimate their new endowment tax bill will exceed the annual budgets of eight of Yale’s 15 schools combined. As a result, hits to Yale’s graduate programs will include a 13% reduction in Ph.D. students over the next three years. Enrollment in science and engineering doctoral programs will decrease by 5%, a smaller drop because those departments receive more research and foundation funding and are less reliant on the university’s endowment. MIT in Cambridge, Massachusetts, is also feeling the crunch from the higher tax rate. At the end of the fall semester in 2025, President Sally Kornbluth and other administrators sent a note to the school community outlining an expected $300 million annual cost to the university from the endowment tax and federal research funding cuts.
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Strategic Adjustments and Future Outlook
New political and economic realities are spurring Princeton University to downshift its investment strategy from growth to focus, as long-term rates of return among university endowments continue to decline. As a result, the Princeton University Investment Co., which manages the school’s $36.4 billion endowment, significantly lowered its long-term return assumptions to 8%, down from 10.2% just three years ago.
Eisgruber wrote that it is hard to notice the decline in long-term investment results because returns have been volatile and inconsistent, rather than a steady 8% or 10% annual return. Eisgruber cited as an example the university’s massive 46.9% return in fiscal 2021-the highest in its history, which raised its 10-year average performance to 12.7%. However, the returns in the ensuing three years were “among the worst that the university has had,” as it registered negative returns for consecutive years for the first time ever. Eisgruber also noted that the three-year average from fiscal 2022 through fiscal 2024 was in the red and ranked second worst in more than four decades, behind only the financial crisis of 2008 and 2009.
Budgetary Choices and Efficiency
“Princeton will continue to evolve, but in the future it will more often have to do so through efficiency and substitution rather than addition,” Mr. Eisgruber wrote to the Princeton community on Feb. Eisgruber explained that if average earnings are higher than 8%, then that margin of return after payout and inflation can support new growth. “That is the fortunate position that Princeton has enjoyed for more than three decades,” Eisgruber wrote. Eisgruber also wrote that Princeton’s reliance on its endowment has “grown dramatically” over time, noting that fund’s payout provides 65% of its operating revenue, compared with 15% in 1985. He also said that while Princeton has strong financial foundations, the university will have to make “hard budgetary choices” in the months and years ahead.
Threats to Academic Freedom
In addition to economic issues, Eisgruber said the university faces “political threats” to its financial model, as the endowment and sponsored research grants account for 83% of Princeton’s revenue. He added that over the past year, the university has enacted budget cuts of 5% to 7% for each of its units amid uncertainty about federal funding, endowment taxes and other federal policies. “American universities have become world leaders in no small part because they have insisted on academic freedom and because our governments have, for the most part, respected it,” Eisgruber wrote.
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