Finances

A financial year of two starkly contrasting halves.
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2019/2020 was a financial year like no other in INSEAD’s history. It began very strongly indeed. From September to February, Executive Education revenues soared and degree programmes remained on track to meet participant targets for the year. Then came the COVID-19 pandemic and campus closures.

 

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Over the next six months, the crisis had a particularly significant impact on Executive Education. Many accepted participants deferred their entry to Open Programmes and, because of travel restrictions, companies delayed Customised Programmes, resulting in a 20% overall drop in revenues. The effect was compounded by a loss of revenue from Campus Hotels, all of which were forced to close.

 

The good news, however, was that student recruitment and admissions to Degree Programmes remained surprisingly buoyant, especially in the case of the Master in Management, which exceeded expectations by admitting more students than projected into the inaugural class of 2020/21.

 

Throughout the second half of the year, INSEAD’s finance professionals acted quickly, working with colleagues across the school to preserve income and reduce costs. Previous investments in streamlining the finance function – along with the recent creation of a global procurement team – paid dividends in helping to effect cost savings.

 

Similarly, the school’s considerable investment, over the last few years, in online and blended learning brought unexpected returns as classes in all degree programmes moved successfully online. At the same time, Executive Education was carefully rescheduled or – in some cases – swiftly redesigned into a virtual format.

 

INSEAD campuses also benefited from government support and loan schemes. In France, the shift to partial activity for many staff members enabled substantial cost savings, while the opening of a government quarantine facility in the Singapore Residences was an unexpected source of revenue. (As well as acting to save money, our priority was to preserve jobs.)

 

Revenue & Expenditures
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In addition, our “investors”, our alumni and friends, many of whom were themselves adversely affected by the pandemic, supported us generously through the second half of the year by donating to the Campaign for INSEAD. Many responded to an appeal for time and money at the beginning of the pandemic. Then, in May 2020, came news of an anonymous gift of €60 million – the largest in the school’s history and a symbol of hope as the initial lockdowns eased.

 

All things considered, we emerged from this most financially challenging of years far stronger than might have been expected. Indeed, the dedication, creativity and enthusiasm of our faculty, staff and students proved to be a resource of incalculable value as we digitised our delivery and moved our classrooms online. We will look back on 2019/2020 as a year of accelerated innovation and of challenges overcome. Looking to the future, the outlook is hopeful. Already we have experienced record applications to our degree programmes and online Executive Education revenues for the first quarter of 2020/2021 are higher than ever before.

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Financial indicators

Column 1
In €000
Column 2
2020
Column 3
2019
Column 4
2018
Column 1
Total Income
Column 2
235,564
Column 3
279,626
Column 4
261,350
Column 1
Operating Cash Flow
Column 2
(11,960)
Column 3
10,707
Column 4
18,295
Column 1
Cash Flow from Endowment (transfer to operations)
Column 2
11,733
Column 3
10,594
Column 4
8,885
Column 1
Net cash flow from Financing
Column 2
42,582
Column 3
(15,454)
Column 4
(1,927)
Column 1
Net cash flow used in Investing
Column 2
(13,246)
Column 3
(12,675)
Column 4
(16,585)
Column 1
Interest paid
Column 2
(659)
Column 3
(1,092)
Column 4
(1,458)
Column 1
Changes in working Capital & exchange losses/gains
Column 2
5,115
Column 3
5,636
Column 4
15,429
Column 1
Cash Flow
Column 2
33,565
Column 3
(2,284)
Column 4
9,157
Column 1
Cash at year end
Column 2
122,999
Column 3
89,434
Column 4
91,718
Column 1
Endowment at beginning of the year
Column 2
254,931
Column 3
238,907
Column 4
212,544
Column 1
Donations received, net
Column 2
21,458
Column 3
15,010
Column 4
17,120
Column 1
Gains and losses from investment activities
Column 2
16,903
Column 3
11,607
Column 4
18,128
Column 1
Transfer to operations
Column 2
(11,733)
Column 3
(10,594)
Column 4
(8,885)
Column 1
Endowment at year end
Column 2
281,559
Column 3
238,907
Column 4
238,907
Column 1
Endowment performance rate
Column 2
6.4%
Column 3
4.8%
Column 4
8.4%
Column 1
Spending rate
Column 2
4.5%
Column 3
4.5%
Column 4
4.2%
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INSEAD is a not-for-profit institution with entities in various countries. Therefore we are not required to publish consolidated accounts, but all our statutory accounts are audited. We maintain a governance structure that includes several committees of the Board of Directors responsible for Auditing, Finance and Risk, Endowment Management and Remuneration. These financial indicators are directly extracted from audited combined accounts based on IFRS accounting standards. Please note that financial indicators from previous years may change.

Endowment

A rock of financial stability in times of uncertainty.
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The COVID-19 pandemic radically altered the macroeconomic environment within which the INSEAD Endowment invests. The effects of the pandemic reverberated around the globe with a profound disruptive impact on individuals, companies and economies.

 

In response, governments imposed severe restrictions on mobility, causing historic declines in economic activity and the most volatile financial markets since the global financial crisis of 2007/2008. The US equity market suffered a -35% peak-to-trough drawdown in little over a month and the VIX index (an indication of equity market volatility) peaked at 83 in March 2020, having traded at a low of 13 in January.

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However, a historically large global monetary and fiscal policy response, combined with economic resurgence in Q3 2020, and the prospects of an effective vaccine buoyed asset prices. By November 2020, the global equity markets were up +8% for the year.

 

As well as new challenges, the pandemic has presented new opportunities. It has served to accelerate a number of pre-existing trends, such as digitisation, that were projected to play out over a longer period of time. It has also created a number of new dynamics, including: technology businesses reaching all-time peak valuations; changed methods of working with knock-on implications for travel, office usage and residential property; and interest rates that are forecast to be near zero for the foreseeable future. All of these have an associated impact on forward-looking returns.

 

While an evolving economic environment is challenging to navigate, flux inevitably creates attractive investment opportunities. The Endowment took advantage of these through a number of tactical moves, including the acquisition of risk assets that had fallen in value in Q1 and the provision of rescue lending to companies in need of liquidity. In addition, the Endowment’s returns were also buoyed by its overweight allocations to the technology and biotechnology sectors, both of which benefitted from the economic environment created by the pandemic.

 

At the same time, the school was not spared the detrimental impact of the economic downturn nor the government-imposed restrictions on mobility and social interaction.

 

Accordingly, the Endowment Management Committee increased the liquidity of the portfolio to be in a better position to support INSEAD’s operating budget, if necessary.

Alexis Habib MBA’81
Alexis Habib MBA’81, Endowment Management Committee Chair
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The ESG sub-committee, led by Professor Lucie Tepla, further refined the environmental, social and governance (ESG) investing framework for the endowment and approved new investments that we believe will have a positive impact on society and the environment.

 

I would like to thank the members of the Endowment Management Committee for their time, insights and dedication, which were invaluable in assisting the Endowment in achieving its strong results through this challenging period. I also extend my deep appreciation to all of our donors for their generosity and their trust. These contributions are all the more important during periods of market dislocation and directly allow the school to pursue its mission of educating the next generation of business leaders and being a global force for good.

 

Alexis Habib MBA’81

Endowment Management Committee Chair

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INSEAD investment portfolio performance

INSEAD investment portfolio performance
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Thanks to both the generosity of our donors and the performance of our investments, the total value of the Endowment increased to €282 million as of August 2020. The investment portfolio, in Euro terms, returned +6.1% in the academic year 2020 and +6.6% per annum over the last three years.

 

Endowment
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Our investment strategy

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The Endowment’s investment strategy focuses on maximising long-term risk-adjusted returns while integrating environmental, social and governance (ESG) factors into decision-making.

 

  • We take relatively high levels of equity exposure given our long-term time horizon.
  • We are diversified across multiple asset classes, including a meaningful allocation to private markets, where we believe that the potential for outperformance is greatest.
  • We aim to select the most skilled asset managers within each asset class.
  • We invest sustainably, by applying ESG principles in our decision-making process.

 

The portfolio has a 33% allocation to private markets, including private equity, real estate and private debt. This allocation has increased over the last five years in order to capture the illiquidity premium of around +3%–5% that private markets typically offer. The private markets portfolio is well diversified, including venture capital investments in early-stage technology companies, private equity investments in lower middle- market businesses, European real estate investments and bilaterally negotiated senior loans to privately- owned businesses.

 

The portfolio made new commitments to two managers focused on the provision of rescue lending to companies in need of liquidity following the detrimental impact that COVID-19 has had on their operating businesses. We believe that these allocations offer particularly interesting risk-adjusted returns, given the high coupon rates, typically +10–15%, and lower loan-to-value ratios than equivalent lending prior to the crisis.

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There is a further 47% allocation to public equities, which, along with the private-market portfolio, represents our core long-term, return-generating asset class. The public equity portfolio consists of a combination of long-only and long- short actively managed funds, as well as passive index trackers. The active portfolio is skewed towards sector specialist managers, particularly those focused on the technology and biotechnology industries. We believe that the deep domain knowledge of these experts will generate differentiated insights into the underlying companies to the benefit of returns. We typically allocate to those sectors characterised by high barriers to entry (for example the scientific understanding required for biotechnology investing) and those with high dispersion in financial outcomes between companies, a tactic that improves the potential return on successful stock selection. The portfolio has a geographic overweight to Chinese equities, driven by a combination of valuation, rapid digital adoption in the country and an environment conducive to active stock selection.

 

The remaining 20% of the portfolio is predominantly invested in a diversified portfolio of absolute- return hedge fund strategies, which aim to generate returns with minimal correlation to traditional asset classes, and inflation-linked government bonds and gold, protecting the Endowment from unexpected rises in inflation.

 

While the Endowment Management Committee is directly responsible for the Endowment, experts from Partners Capital – our advisers since 2007 – manage the investment portfolio on our behalf. We would like to thank Partners Capital for their support in ensuring the long-term growth of the INSEAD Endowment.

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Total Assets of endowment portfolio

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(August 2004–August 2020)
Total Assets of endowment portfolio
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  1. The academic year starts on 1 September and finishes on 31 August.
    This is reflected in the table above. For example, the year labelled 2020  reflects performance from 1 September 2019 to 31 August 2020.

  2. The INSEAD investment portfolio consists of the portfolio managed by Partners Capital.

  3.  The INSEAD endowment consists of the portfolio managed by Partners
    Capital and all other assets including direct property, cash and other assets.

  4. The INSEAD Composite Benchmark is a custom benchmark comprised of asset class indices (e.g. MSCI World NR 100% Hedged to EUR for the equity allocation or State Street Private Equity Index for the private equity allocation) and weighted to reflect the long-term strategic asset allocation adopted by the committee.

  5. Total endowment portfolio assets include donations.

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Annual Report Description
We are pleased to provide downloadable versions of Our Year in Review 2018/2019 and annual reports from previous years. All downloads are available in the PDF file format.