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Who'd a thunk the IRR on the new, and oddly phallic Huntsman Hall would be quite so attractive. Well, it wasn't really positive, but these days down little is the new killing it (absent being too big to fail or too UAWed not to have a 30 day successful and gov't backed stalking horse auction).

The Philadelphia university is expected to see its endowment decline by only 15.7% in the fiscal year ending June 2009, a stark contrast to bigger and "smarter" rivals such as Harvard and Yale, which are set to be down 30% and 25%, respectively.

Turns out the street smart Whartonites, who know to milk "legendary" financiers such as Saul Steinberg and Jon Huntsman (and maybe Steve Wynn although the jury is till out on that one) for new, ivy-faced buildings just ahead of...stressful corporate events, anticipated the events of last year better than most. Reports the WSJ:

Pennsylvania's endowment benefited from its decision in early 2008 to reduce its publicly traded equity positions and to invest some of that money in Treasurys, one of the rare assets to appreciate in value during 2008. Pennsylvania also says its equity managers beat their domestic and foreign benchmark indexes by more than 10 percentage points.

"By the end of 2007, we were starting to get concerned about systemic risk," said Kristin Gilbertson, chief investment officer of the endowment. "Our long-term plan was to reduce our equity exposure and diversify our portfolio. Given our concerns, we decided to accelerate that move."

At the start of 2008, 53% of the portfolio's assets were in public stocks. By June 2009, that figure was down to about 43%, and about 15% of the assets were in Treasurys.

Ms. Gilbertson said the large Treasury position enabled the endowment to meet capital calls from private-equity firms that left their peers scrambling to raise cash. Many other endowments had expected to pay these cash calls with distributions from their private-equity partners. When these dried up, endowments were forced to sell stocks or other assets at a time of steep declines.

Also, Gilbertson's disclosure on PE posture should concern quite a few private equity managers:

Ms. Gilbertson said. She added that Pennsylvania isn't looking at buying private-equity partnerships in the secondary market because she thought recently raised funds didn't look attractive.

Is someone starting to realize that 5x leverage for 3 years at 8%, with an exit based solely on trimming some muscle here and there will no longer generate 20% IRRs?

If this epiphany spreads to other endowments, either educational or pensional(sic), it will make the lives of the Steve Rattners of the world so much more difficult, in both finding garbage companies to burden with excessive leverage, and have Jefferies refi only to have the firm's restructuring group pick up the baton within a year, as well as to provide kickbacks for redirecting pension funding.

On the other hand, in that parallel universe Attornys General would be able to avoid marginal distractions and actually go after the real perpetrators of major market improprieties.