Nobel Sacrifice

12 June 2012 By Richard Beales

Winners of Nobel Prizes for sciences, literature and peace will get 20 percent less cash this year – 8 million Swedish crowns, or about $1.1 million each. That’s because the foundation wants to live within the long-term means provided by its endowment.

It says it outspent its investment returns in recent years and, essentially, doubts its ability to make decent returns in the next few. Total outlays last year, including 50 million crowns for five prizes, totaled 120 million crowns, easily outstripping investment-related inflows. Net of outgoings, its asset value fell a sharp 6.5 percent to about 3 billion crowns.

As well as reducing the value of prizes, the organisation has rejigged its investing process. Administration costs and the amount spent feting the winners will also be under scrutiny. With assets only narrowly above the 2008 low point and 18 percent below the 2007 level, it needs to cut its cloth.

The foundation aims to keep outlays at under four percent of assets in order to preserve its inflation-adjusted prize-giving power. That limit is approaching. Pension funds, among others, should take note. Many have commitments they can’t meet, and only square the circles by clinging to the hope for future investment returns that mirror past glories. Annual returns of eight percent? Good luck with that.

In a similar vein, governments are regularly guilty of covering real shortfalls now with pie-in-the-sky hopes for surpluses later. Individual savers, too, might take a leaf from the Nobel book of investment pragmatism. That’s only prudent given the near-zero baselines defined by German and U.S. government bond yields, and the vulnerabilities of equities in a sluggish-or-worse global economic outlook.

The Nobel Foundation is among those hoping that hedge funds and other alternative investments can improve on the traditional stock and fixed income mix. It increased those holdings to 33 percent of its assets in 2011 from 24 percent the year before. But its investment hopes are fortified by its approach to costs. Cutting the size of its payouts is a shame for the brainbox laureates, who don’t have many awards offering both reputational and financial benefits on the scale of the Nobels. But the foundation deserves a prize of its own for realism.

 

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