Caltech Endowment

October 3, 2022
By AdmissionSight

Caltech Endowment

What is the current Caltech Endowment? The California Institute of Technology (Caltech) is a research and education institution that is known all over the world for its work in the fields of science and engineering. Here, exceptional faculty members and students work together to find answers to difficult questions, uncover new information, drive innovation, and shape the future.

Caltech is comprised of six academic divisions, all of which place a significant focus on the teaching and research of scientific and technological subjects. The admissions process at the institution is extremely difficult, and as a result, the school accepts only a select few of the brightest and most talented individuals.

A significant amount of research is produced at Caltech, which also boasts a large number of facilities of an exceptionally high standard, both on campus and across the world. The Jet Propulsion Laboratory, the Caltech Seismological Laboratory, and the International Observatory Network are all included in this category.

The graduates and professors of Caltech have been honored with a total of 71 National Medals of Science or Technology, one Fields Medal, six Turing Awards, and 39 Nobel Prizes. In addition, they have won a total of six Turing Awards. Additionally, the college has educated four of the chief scientists for the United States Air Force.

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The purpose of the institute is advanced by the Caltech endowment, which does this by endowed gifts from Caltech graduates and other members of the Caltech community of support on an annual, capital, planned, and endowed basis. Supporting the endeavors of an exceptional collection of scientists, researchers, engineers, students, postdoctoral scholars, and administrators at Caltech who work relentlessly to improve science and technology in order to tackle some of the most difficult problems facing the world today.

How much is the Caltech Endowment?

How much is the Caltech Endowment?  During the fiscal year 2021, the investment pool for the Caltech endowment achieved a record-setting growth of 31.0 percent, which amounted to $955 million. This expansion was made possible by donations to the endowment and other additions to the investment pool totaling $135 million, as well as investment returns totaling $1.02 billion. These figures were partially offset by payouts and other withdrawals totaling $199 million, which were made to support Institute activities.

During the period that concluded on September 30, 2021, the Caltech endowment investment pool earned annualized investment gains of 33.7 percent for the one-year period, 14.9 percent for the three-year period, 14.0 percent for the five-year period, and 11.2 percent for the ten-year period. As is seen in a different section of this study, each of these figures achieved a return that was 9.0 percentage points, 3.9 percentage points, 3.5 percentage points, and 2.8 percentage points higher than the benchmark returns established by Caltech’s internal investment strategy.

To say that the performance of the market during the fiscal year 2021 was unexpected would be an understatement, particularly in light of the buoyant performance of the market during the last three quarters of the calendar year 2020. However, when viewed through the lens of retrospect, it is not all that difficult to comprehend.

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The Federal Reserve continued to purchase government bonds, which, along with the extremely low 0.25 percent target rate for the fed funds rate, helped to keep interest rates at extremely historically low levels. Consumers were encouraged to spend their newly acquired liquidity as a result of stimulus cheques, tax deferrals, and other government-sponsored programs, which resulted in a robust increase in pull-through demand.

As the world adjusted to the “new normal” of living with COVID-19, a slew of businesses that were driven by the pandemic reaped the benefits. These businesses included those that provided food delivery, home entertainment, exercise, software, and hardware that facilitated remote learning and business communication, social media, automobiles, and health care, amongst many others. As a direct consequence of this, the S&P 500 Index finished the fiscal year with a total return of 30.0 percent (this figure includes dividends).

On the other hand, it would turn out that 30.0 percent was a pittance compared to the private markets of venture capital and leveraged buyouts, which, according to Cambridge Associates, generated average returns of 82.4 and 42.5 percent, respectively, during the fiscal year. However, it would turn out that this was a pittance compared to the public markets of stocks and bonds. As institutional investors poured money into growth companies and private equity to replace yield-starved fixed-income assets, it was abundantly evident that the market had adopted a “risk-on” attitude.

As ordinary investors frantically traded from home on new platforms such as Robinhood, the term “meme stock” also made its way into our lexicon at about the same time. During this time, the investment pool for the Caltech endowment continued on its previous path, placing a high value on diversification and liquidity while avoiding portfolio-level leverage.

The only asset class that did not do very well was investment grade fixed income. Almost every other asset class did exceptionally well. As was mentioned above, the performance of private equity was far better than had been anticipated. Our venture capital and buyout managers generated returns of 64.0% and 68.0%, respectively, for the fiscal year. The overall performance of private equity was 16.5 percentage points better than its internal benchmark.

Even though it is simple to wish in hindsight that Caltech had owned more in these asset classes (which at the end of the fiscal year represented 23.4 percent of the endowment investment pool), Caltech constantly reminds itself that these asset classes (a) are virtually illiquid and can be locked up at least partially for 15 to 20 years and (b) continue to be the riskiest asset classes in the endowment investment pool. Even though Caltech has benefited from recent returns that have been significantly higher than average as a result of its ownership of these asset classes, the institution has not lost sight of the fact that the ever-increasing valuations paid for start-ups and highly leveraged companies have made investments in venture capital and leveraged buyouts even riskier.

As a result, Caltech approaches these markets with caution and patience, and the institution develops an annual investment “budget” that assures we have vintage-year diversification. It’s interesting to note that throughout the fiscal year, all of the other major asset classes, such as global public stocks, alternative securities, and real assets, achieved returns of approximately 25 percent each.

The return on global public equities came in at exactly the same level as our benchmark for global public equities, which was 25.9 percent. Caltech’s developed markets managers, who concentrate their efforts on western Europe and Japan, led the field with an aggregate return that was significantly higher than that of U.S. stocks during the course of the year.

30.4 percent return. A remarkable turnaround from the previous fiscal year’s dismal return of –0.7 percent was accomplished by alternative securities, which earned a return of 26.4 percent. By a comfortable margin of 9.2 percentage points, this return was able to easily surpass its benchmark return. In a similar vein, real assets, which include energy-related funds and real estate, generated a return of 25.5 percent, falling short of its benchmark return by 2.1 percentage points. This underperformance was primarily caused by a robust recovery in oil prices, in which many of Caltech’s investments did not fully participate.

The performance of the Caltech endowment continues to be strong and is getting even better when compared to that of our counterparts at other colleges and universities. According to the data that Cambridge Associates gathered for the period that ended on September 30, 2021, the performance of Caltech’s endowment investment pool placed the institution in the first (top) quartile for each of the one-, three-, five-, and 10-year periods among the approximately 132 institutions of higher education that had submitted data to Cambridge. This performance is especially satisfying in light of the fact that the endowment investment pool has lesser exposure to private equity in comparison to several of our counterparts who rank among the highest performers.

Throughout the course of the year, the Investment Office maintained its commitment to the advancement of its DEI (diversity, equity, and inclusion) activities. The Investment Committee voted in favor of approving a DEI statement that will serve as a guide for the office’s strategy for selecting DEI-aware managers. The completion of a DEI questionnaire covering diversity among ownership, management, employees, and interns has also become an established component of our procedure for selecting investment managers.

What is an Endowment?

What is an Endowment? The Caltech endowment serves as a buffer against the volatile financial markets and the unpredictability of external funding sources. Moreover, the Caltech endowment provides a reliable source of finances year after year. Also, it fosters intellectual boldness as well as creative thinking. When staff and students at an institute are made aware that the institution will continue to support them over the long term, it gives them the confidence to explore new territory and do things that have never been accomplished before.

Because of this, one of the most important goals of Break Through: The Caltech Campaign was to increase the amount of money that was donated to endowments. And former students and friends of the university rose to the challenge by making investments in the various people, programs, and buildings located across the campus. By the time the fundraising effort came to a close at Caltech on September 30, 2021, the institution had received more than $3.4 billion in contributions, with more than half of that total going to the endowment.

Campaign donors have helped to secure Caltech’s competitive advantage in recruiting and retaining the brightest and most creative scholars from around the world for future generations by contributing to the endowment of professorships, leadership chairs, fellowships, and scholarships. This advantage will allow Caltech to continue to recruit and retain the brightest and most creative scholars.

Young woman preparing for an interview.

Endowed contributions were also given by contributors to the campaign with the intention of advancing interdisciplinary research in fields in which Caltech has the potential to affect the world. Caltech researchers are able to forge dynamic cross-disciplinary collaborations and develop innovative approaches and tools as a result of investments made in fields such as neuroscience, biological and medical engineering, translational research, autonomous systems and technologies, planetary studies, theoretical physics, energy and sustainability, and other fields. This work, in turn, is generating fundamental discoveries, bringing products that can change people’s lives to market, opening up totally new fields of inquiry, and transforming how science is carried out.

Donors to the Break Through campaign voiced their faith in the Institute’s ability to maintain its high standards of leadership and excellence by contributing to the establishment of endowments that are both unlimited and flexible. Because endowment funds are invested in such a way as to produce revenue in perpetuity, these adaptable resources will assure that future generations of Caltech scientists and engineers will have the means to tackle challenges and grab possibilities that we are not yet able to conceive about.

“Break Through” was the name of the Caltech Campaign, which was completed on September 30, 2021, and it was the Institute’s most successful fundraising endeavor in its whole history. To assist the staff and students of Caltech in pushing the boundaries of science and technology toward a better future for all of us, a total of 14,801 donors contributed more than $3.4 billion, with $1.9 billion of that amount being pledged to the endowment.

What Investment Firm handles Caltech Endowment?

What Investment Firm handles Caltech Endowment?  The Investment Committee of the Board of Trustees is primarily responsible for establishing investment policy, supervising policy implementation, and approving major investments. The Caltech Investment Office reports jointly to both the president of the Institute and the Investment Committee of the Board of Trustees.

At least once every three months, the committee gets together to discuss and analyze the performance of the portfolio, as well as new investments, investment policies, and asset allocation. In addition, the committee communicates often with one another in between sessions to discuss particular investments and other opportunities as they come up. The members contribute an exceptional level of competence not just in their respective asset classes but also in the investing business as a whole.

Two people talking in a desk.

The Investment Committee is responsible for reviewing and approving any recommendations that are developed by the Investment Office regarding investment policies, strategies, and asset allocations. After the general principles have been established, the Investment Office will locate investments and what it thinks to be the greatest asset managers in the globe from all over the world who are capable of successfully implementing the selected investment strategies. The office is primarily concerned with medium- to long-term performance, which includes the identification of global trends and investment possibilities that may emerge over a period of several years.

The primary objective is to earn long-term rates of return that support the annual endowment payout and maintain the endowment’s inflation-adjusted purchasing power, which will allow it to support Caltech’s activities for generations to come. Quarter-to-quarter performance is closely monitored, and appropriate portfolio adjustments are made from time to time. However, the primary objective is to earn long-term rates of return that support the annual endowment payout.

Where is Caltech Endowment Invested?

Where is Caltech Endowment Invested? The California Institute of Technology (Caltech) is responsible for the management of an endowment fund that is located in Pasadena. The endowment helps the institute fulfill its goal by soliciting donations from graduates and other members of the Caltech community of support on an annual, capital, planned, and endowed basis.

More than one thousand one hundred different privately donated endowed funds are represented in the endowment investing portfolio. Each time a new Caltech endowment is established at Caltech—whether it be a research center, scholarship, fellowship, professorship, or discovery fund—the associated monies are added to the university’s endowment portfolio so that they might be invested. The members of the executive committee and the investment committee are responsible for managing the endowment fund’s assets.

In addition, the Investment Office Team contributes a significant amount of expertise as well as a broad base of experience to the management of the Institute’s investments. The Investment Committee is responsible for reviewing and approving any suggestions developed by the investment team regarding investment policies, investment strategies, and asset allocation. After the general principles have been established, the investment team will begin the process of locating assets and what it regards to be the best-in-class asset managers located all over the world who are capable of successfully implementing the chosen investment strategies.

Group of students working on a table with strewn papers.

The team focuses on performance over the medium to long term, recognizing global trends and investment possibilities that may develop over a number of years. The primary objective is to earn long-term rates of return that support the annual endowment payout and maintain its inflation-adjusted purchasing power, which will allow it to support Caltech’s activities for generations to come. Quarter-to-quarter performance is closely monitored, and appropriate portfolio adjustments are made from time to time. However, the primary objective is to earn long-term rates of return that support the annual endowment payout.

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