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Princeton endowment holding cash over bonds

Princeton University campus

Princeton University's $17 billion endowment has built a 5.9% cash position, moving almost entirely out of fixed income, according to a report recently issued by the university's finance and treasury office.

The endowment's target allocation to cash is zero. Fixed-income assets as of June 30 were 0.3%, while the target allocation is 6%.

“The underweight in fixed income should be viewed in conjunction with the cash position, as we consider cash a proxy for fixed-income exposure,” according to the treasurer's report. “We are currently holding cash rather than fixed income due to a combination of exceptionally low yields that U.S. government bonds offer, increased price risk, and decreased 'insurance' functionality.”

The endowment returned 3.1% for the fiscal year ended June 30, outperforming the policy benchmark, which returned 0.9%. Both the endowment and policy benchmark trailed the secondary benchmark of 65% S&P 500 and 35% Barclays Government/Credit indexes, which returned 6.6%.

Domestic equities and “independent return” strategies were top performers in the fiscal year ended June 30. Domestic equities returned 15.8% during the year compared to 3.96% for the Wilshire 5000. Independent return strategies returned 4.3% for the year.

International developed markets and emerging markets equities were the worst performers returning -9.7% and 0.2%, respectively, in fiscal year 2012.

For the 10 years ended June 30, the endowment returned 9.9% annually compared to the policy benchmark of 9.3% and the secondary benchmark of 5.9%. Emerging markets equity and private equity were the leading performers for the 10-year period, annually returning 17.4% and 11.5%, respectively.

Staff at Princeton University Investment Co., which manages the endowment, could not be reached for further comment by press time.