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University chief investor talks endowment with SACUA

By Sam Gringlas, Daily Staff Reporter
Published March 25, 2013

On Monday, Erik Lundberg, the University’s chief investment officer, joined members of the Senate Advisory Committee on University Affairs to discuss the University’s endowment, which is currently the seventh largest of U.S. public and private institutions.

Growth of the University’s endowment provides much of the funding for University spending. To build a portfolio, the University invests money from charitable giving and bequests it into stocks, bonds, companies and natural resources. By investing, the University is able to constantly grow funding pools.

While the University’s endowment was $7.7 billion last year, it has not always been so large.

Prior to Lundberg’s arrival in 1999, the University did not have an office dedicated to investments. Lundberg was recruited to head a new University Investment Office in downtown Ann Arbor at the corner of Huron Street and Main Street, which now houses 13 investment professionals. The office oversees all University financial assets, and develops investment strategies and implements them with subcontracted fund managers.

Since Lundberg began, the University’s endowment has moved its way up the rankings from the 17th-largest in the nation to the seventh largest. The University now competes with institutions such as Harvard University, which consistently ranks first with an endowment of $30 billion. Lundberg said the University has passed the University of California system and now has the second largest public university endowment, remaining behind the University of Texas system.

“No other University has moved up so quickly,” Lundberg said. “The idea that having this group of dedicated professionals will do a better job than part-timers has paid off for the University. We hope this trend will continue.”

In order to keep the endowment growing, Lundberg said the University spends only about 4.5 percent of it, a slight decrease from the 5-percent level of spending prior to the economic downturn in 2008, when endowments took a hit during the financial crisis.

In addition to deciding how much to spend and invest, the office must choose where to place its money, which is spread across categories such as private equity, venture capital and real estate.

While Lundberg’s office sets the investment strategy, other firms often advise on specific methods for implementation. For example, if the University decides to invest in a technology company or a real estate property, fund managers assist in choosing the specific company or property.

“We think it’s very important that when people give money to the University we steward it the best we can,” Lundberg said. “We take it very seriously.”

Lundberg also said the Board of Regents has established a policy of selecting investments based on the best potential for returns, not social or political purposes.

“We can’t let our personal views influence the investments we pursue,” Lundberg said.

As an exception, the University does not invest in any tobacco-related companies. In the past, the University opted out of investments tied to South Africa, then under Apartheid policies.

Following Lundberg’s discussion, Steve Grafton — president of the University’s Alumni Association — and SACUA members discussed the decreasing student-body diversity at the University.

Grafton detailed the goals of the group that includes 63 alumni clubs in the United States and 98,000 members. In addition, he focused on efforts to increase diversity.

While the University can no longer participate in affirmative-action programs due to a state law that will soon be tested by the U.S. Supreme Court, Grafton said the Alumni Association has the opportunity to spur diversity because it is not affiliated with the University.

In 2008, the Alumni Association began the LEAD Scholars Program, which awards scholarships to accepted students representing minority groups.

“We can’t admit students, but we can certainly recruit them from among the students who have been admitted,” Grafton said.

After four years of the program, Grafton said it is making major strides. Before the LEAD program, Grafton said 64 percent of accepted in-state, under-represented minorities — which includes blacks, Latinos and Native Americans — enrolled at the University. With the LEAD program, the figure has increased to 75 percent.

Out-of-state numbers show an even larger increase, rising from 24 percent to 75 percent under LEAD.

Grafton added that 100 percent of those receiving LEAD scholarships have graduated on time.

“The goal for us is to try to get as many students enrolled on campus as we can,” Grafton said.

Still, Grafton said funding the program continues to be a challenge. As soon as the program started, the economy tanked. As a result, $1.4 million is still needed to fund currently enrolled LEAD members through their graduation. The Alumni Association, which receives no University funding, is hoping to raise $8.5 million during the upcoming capital campaign.

With those funds, Grafton said the Alumni Association could sponsor 75 to 125 scholarships per graduating class.

“Sometimes it feels like there aren’t a lot of people on campus taking this program seriously,” Grafton said.

However, he said University President Mary Sue Coleman and her husband Ken Coleman understand the importance of affirmative action and have personally contributed to the fund.

“(With increased funding and students) we can begin to impact our shared challenge of achieving a more diverse student body and begin to reverse this downward trend,” Grafton said.

In addition to the guest speakers, SACUA held chair and vice chair elections. The committee elected Karen Staller, associate professor of social work, as chair and Dentistry Prof. Rex Holland as vice chair. The new officials will serve one-year terms.

Staller ran unopposed for the position and was confirmed by acclamation of the present members. Holland ran against Medical School Prof. Charles Koopmann, who was not present at the meeting.

“I’m excited to be representing the faculty,” Staller said. “It’s such a talented and diverse group and this particular group is wonderful, and it’s going to be wonderful to represent the larger University as well.”

Staller said there will be many issues that SACUA will face in the upcoming year of her term, including the selection of the next president due to Coleman’s impending departure in 2014.