Endowment grew last year despite troubled economy

Daily Staff Reporter
Published October 23, 2008

FLINT — Despite financial chaos and declining stock markets around the world, the University’s endowment grew 6.4 percent in the fiscal year that ended June 30, according to a report presented at yesterday’s Board of Regents meeting.

Regent Katherine E. White (D – Ann Arbor), the chair of the Finance, Audit, and Investment Committee, said the endowment’s value was $7.6 billion on June 30, the end of the 2008 fiscal year. At the end of the previous fiscal year, the endowment was worth $7.1 billion. But that year, which saw much stronger financial markets, the endowment increased in value by 25.5 percent.

“This is exceptionally good when the stocks have declined and the median endowment has lost value across the nation,” White told the crowd in the University Center at the University of Michigan’s Flint campus. Yesterday’s meeting was the only one this year that will be held in Flint.

According to the report, the University’s endowment now stands as the eighth largest in the country among all institutions of higher education and the second largest among public universities. The National Association of College and University Business Officers (NACUBO), which ranks endowments, has not yet released its rankings for this year.

White credited the growth of the endowment to the generosity of alumni and other donors, as well as the University’s investment team, headed by Eric Lundberg, the University’s chief investment officer.

The 6.4 percent increase was a better return than most major market indexes posted during the period. The Standard & Poor’s 500, an index of large U.S. stocks, fell 13.1 percent during the same period, while the Dow Jones Industrial Average fell 13.4 percent.

According to research cited in The Wall Street Journal in September, large endowment funds lost an average of 4.4 percent in the fiscal year that ended in June. Harvard University’s endowment — the nation’s largest — posted an 8.6 percent return, bringing its value to $36.9 billion, while Yale University’s endowment increased 4.5 percent to $22.9 billion.

In an interview after the meeting, Lundberg said the growth of the endowment stemmed from a diversified but simple long-term investment strategy.

“We try to be up when the markets are up,” he said. “And when the markets are down, we try to be down less.”

Lundberg said the University was able to avoid much of the beating suffered by stock portfolios and retirement plans around the country in recent months because the University’s portfolio has a lot of investments “that are specifically designed to do well when the markets are down.”

University President Mary Sue Coleman praised the success of Lundberg and his staff in an interview after the meeting.

“We have got the best investment team in the country,” she said with a laugh.

During the meeting, Coleman said maintaining a robust endowment affects funding for all the university's activities, including scholarships for students and research projects for faculty members.

"The strength of our finances is the backbone of our excellence in teaching and research," she said. "The prudent management of our resources has been more evident than ever with the recent fluctuations in the market."

The University’s endowment is a collection of about 6,500 separate funds. When a donor gives money to the University, it is earmarked for particular scholarships, educational programs or professorships. The University, which is legally bound to spend the money as determined by the donor, does not spend the money itself. But instead, invests the money in a fund to provide a steady flow of cash every year. Currently, about 20 percent of the endowment goes to student financial aid.