Princeton’s declining returns: an equity hedge story

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What we found

• Princeton’s allocation labels did not explain its return pattern. The portfolio behaved as if it had far less U.S. equity exposure than the reported mix would suggest.
• The disclosed equity hedge appears central to the story. Its impact becomes visible only when private assets, public assets, hedge funds, and overlays are analyzed together.
• Princeton seems to have missed much of the U.S. equity rally. MPI’s returns-based attribution suggests very limited effective U.S. equity exposure during a period when that exposure mattered.
• Private equity beta was not stable. MPI’s Dynamic Desmoothing Technique suggests PE beta declined sharply after the FY2021 peak, reducing the equity sensitivity of Princeton’s dominant asset class.
• The broader lesson: in alternative-heavy portfolios, exposures are not allocations.

More than a year ago, MPI Transparency Lab flagged a striking result: Princeton posted the lowest FY24 return in our Ivy+ peer set – 3.9% versus an 8.3% Ivy average.

The weak result was not simply a matter of private equity or venture capital. Using MPI Stylus Pro on Princeton’s published annual endowment returns, our returns-based attribution suggested something more unusual: the portfolio had very limited effective U.S. equity exposure.

Contribution by asset class to total return for each Ivy+ endowment and a 70/30 global benchmark, based on asset-class exposures estimated in MPI Stylus Pro from published annual endowment returns (FY24). Princeton has the lowest return in the group and is the only endowment with no U.S. equity contribution in the attribution.

When we then reviewed Princeton’s own disclosures, we found language suggesting that PRINCO had built a meaningful equity-market hedge over roughly 2019–2022. In the FY2022 Report of the Treasurer, PRINCO described a “significant equity market hedge” that it had “established and amplified” as a defensive response to high U.S. equity valuations and elevated effective equity beta. The hedge was implemented primarily via equity index shorts (including NASDAQ futures) and later restructured to include put options, in part to reduce “melt-up” liquidity risk.