Chasing Cash; University treasuries used to be sleepy and slow. But now the race to pile up money is on.

Byline: Stephen Glain

It was clear the good times were over. After the dot-com crash, University of Washington treasurer V'Ella Warren saw that record growth in the college's endowment was finished without a professional at the helm. "I believed that going forward, markets would be tougher," she says. "To increase returns we would have to be smarter."

So Warren did what a growing number of college treasurers are doing: she hired a blue-chip-fund manager from the private sector--in this case, Keith Ferguson from Fidelity Investments. Since Ferguson's arrival in January 2005, the UW's fund has delivered an annual return of 14.7 percent and grown to $1.7 billion. It now ranks as the 32nd largest endowment in the United States, and proves how far the endowment-growth boom has spread beyond the famous successes of Stanford, Yale and Harvard.

American colleges and universities are now among the world's most admired investors. The average return on endowments rose 9.3 percent last year, down from 15.1 percent in 2004 but still better than most rivals--and enough to draw imitators. Foreign universities are now following the lead of U.S. peers, flocking to a weeklong investment seminar held each year by the Commonfund Institute, which manages the endowments of nonprofits worldwide. Cambridge Associates LLC, a Commonfund counterpart, opened an office in Singapore five years ago in response to growing Asian interest. "If you look among professional fund managers and ask who are the best investors, they'd tell you U.S. colleges and universities," says Cambridge Associates manager James Bailey. "In general, they have performed a couple of hundred basis points better than any U.S. pension fund over the last 30 years."

Nothing lures new money like high returns. Last year, American colleges and universities received $26.7 billion in donations, up 4.9 percent from the previous year. A 2005 survey by the National Association of Colleges and University Business Officers found that academic endowments in the United States are worth some $300 billion--roughly the size of the Polish economy. Growth is more broad-based than ever, with an overwhelming number of institutions boasting endowments worth more than $1 billion. Such sizzling growth is prompting many academics and alumni to wonder if endowments are bulking up too fast, particularly in risky assets such as commodities and hedge funds. "The academic community is in an arms race for larger ...