Princeton cuts long-term return target on $36 billion endowment, flags deeper spending curbs
Princeton University has reduced its long-term return assumption for its $36 billion endowment, citing changing market conditions and pressure in private equity investments. According to a report by the Financial Times, the university has lowered its expected annual return from 10.2 per cent to 8 per cent. Princeton’s president Christopher Eisgruber said even the revised figure “might be considered aggressive” given current trends.The move could have significant financial implications for the Ivy League institution, which relies heavily on its endowment to fund academic programmes, research and financial aid.
Why Princeton is lowering its expectations
In his annual State of the University letter, Eisgruber pointed to “changing market fundamentals”, driven by excess capital chasing limited investment opportunities. Princeton has historically invested heavily in private equity, which as of June 2025 accounted for more than 40 per cent of its portfolio.For years, elite universities benefited from access to high-performing private investment opportunities. However, as more institutional investors entered the space, competition increased and returns began to compress. Higher interest rates have also slowed exits such as initial public offerings and acquisitions, affecting short-term performance.As reported by the Financial Times, the endowment’s returns after its record 47 per cent gain in 2021 were among the worst in the university’s recent history. Princeton recorded two consecutive years of negative performance for the first time. Over a longer horizon, its 20-year rolling return has declined from over 14 per cent in 2005 to less than 10 per cent in 2025.
Impact on university spending
The lower return assumption could translate into $11 billion less in endowment assets over the next decade, a figure larger than the proceeds of Princeton’s past two major fundraising campaigns combined.Eisgruber said the university had already sought spending cuts of 5 to 7 per cent across departments over the past year. He warned that the expected long-term decline in returns would require “more targeted, and in some cases deeper, reductions over a multiyear period”.The decision comes at a time when universities are also dealing with federal funding reductions under the Trump administration, making endowment performance even more critical to financial stability.
A broader challenge for endowment models
Experts told the Financial Times that Princeton’s decision reflects broader stress in the traditional endowment investment model, which has long depended on illiquid but historically high-return private assets. Britt Harris, former chief investment officer of the University of Texas/Texas A&M Investment Management Company, said that generating double-digit returns over long periods through diversified portfolios is becoming increasingly unrealistic in the current environment.He pointed out that many institutional investors — including pension funds and university endowments — moved aggressively into private markets without fully accounting for liquidity constraints and valuation risks. The surge of capital into the space has intensified competition for deals and compressed returns, effectively normalising performance levels that were once considered exceptional.Eisgruber also acknowledged the uncertainty surrounding the outlook, indicating that the university’s revised assumptions could still prove either overly cautious or overly optimistic.Princeton’s recalibration marks a significant shift for one of the world’s wealthiest universities and underlines the mounting pressures facing large endowment-driven institutions as investment conditions evolve.
