Princeton warns budget under strain from politics, soft returns

PRINCETON, New Jersey - Princeton University warned of economic challenges, saying it can no longer rely on high endowment returns at a time when political threats to its finances are increasing. 

“We expect that budgetary and operational changes will begin in the coming months and occur over a multi-year period,” Princeton president Christopher Eisgruber said in a letter to the campus on Feb 2.

“Princeton will continue to evolve, but in the future it will more often have to do so through efficiency and substitution rather than addition,” he wrote.

The school, which has a US$36.4 billion (S$46.27 billion) endowment, will transition away from a “growth” mode because long-term rates of return are steadily declining across university endowments. That means a slower pace of construction of new buildings and identify areas to cut or eliminate programs. 

The Ivy League school relies on its investment fund for about 65 per cent of operating revenue, up from 15 per cent in 1985, helping pay for costs such as financial aid, scientific research and faculty salaries.  

The New Jersey school has followed the so-called Yale model of investing for the last several decades, an approach that assumes higher returns in exchange for locking up money for the long term. But private equity returns have been lower as interest rates have remained elevated, making public exits from companies less frequent. 

Universities, including Yale and Harvard, in 2025 sold private equity funds on the secondary market while public stocks have outperformed the asset class.

Investment gains at Princeton have been lower over the last several years, with its three-year annualised return the lowest of the Ivy League schools with a 4.3 per cent return, according to data compiled by Bloomberg. In 2025, the fund was second to the bottom with an 11 per cent return, while its 20-year annualised return was tied for second with Brown University.

“This decline has been hard to see because returns have been volatile. In other words, returns have not been a steady 8 per cent or 10 per cent; instead, they have been all over the map,” Mr Eisgruber wrote. 

Mr Eisgruber did not give specific changes to investments or strategy and expressed confidence in the endowment office, known as the Princeton University Investment Company. 

“Princeton has strong financial foundations and excellent opportunities, but we must nevertheless make some hard budgetary choices in the months and years to come,” he said.

If the school’s spending rate becomes too high, it would need to make large and rapid budget cuts, which would involve large-scale layoffs among other measures. 

“We are better off making hard choices now to reduce the likelihood of even more painful actions later,” Mr Eisgruber said. 

Princeton is one of a handful of wealthy private universities expected to pay a larger tax on its endowment after Congress passed a new spending and tax bill in 2025. The levy increased from 1.4 per cent to 8 per cent on net investment gains. BLOOMBERG