Despite a significant drop in its overall investment portfolio last year, top University officials are saying publicly that they expect to see above-average returns this year.
The University’s endowment fell more than 20 percent last year, leaving its market value down $1.6 billion. However, a communication to the University’s Board of Regents earlier this month projected that the endowment would grow by 11.5 percent by the end of the year. If reached, the growth would put the University’s endowment to $6.7 billion — an increase of nearly $700 million.
Such projections are not typically released by University officials, who carefully guard detailed information about the true market value of the endowment until investment returns are formally released at the October Board of Regents meeting.
However, the estimates given by Tim Slottow, the University’s executive vice president and chief financial officer, appeared in a communication sent to the University’s Board of Regents earlier this month.
The communication was a proposal Slottow had submitted to lower the University’s endowment annual payout rate from 5 percent to 4.5 percent. However, the proposal was tabled during June’s lengthy meeting which focused on the University’s budget.
Despite the technical withdrawal of the proposal, Slottow verified in an interview with The Michigan Daily that the projection of an 11.5-percent return on the endowment was still accurate for this year. However, Slottow cautioned that the estimate will likely not be exact and could end up being different depending on market performance.
If the projected performance does hold true, it would outpace the average return realized on the University’s endowment, which has seen average growth of nine percent each year over the last decade. Such growth outpaces the S&P 500, which lost an average of 2.2 percent per year over the same time period, and the average university endowment, which earned 4.2 percent per year over the last 10 years.
And while the University’s endowment has consistently outperformed many other universities across the country, Slottow’s proposal to the regents to lower the endowment payout rule could help the University to increase its annual returns further.
In his proposal to the regents, which may be brought before the regents in July since it was not discussed at the June meeting, Slottow outlined that the change could help to further insulate the University’s endowment from market volatility by providing a more consistent, positive return on the University’s investments. The result would minimize chances that the University would see major positive or negative swings in the market value of its endowment.
If the proposal is approved by the Board of Regents in the upcoming months, the change would be the fourth time the regents have changed the endowment spending rule since implementing their first non-absolute return endowment spending policy in 1986.
University leaders have also said that any change to the endowment spending rule would be implemented slowly to ensure funds are more consistently distributed to units within the University than in prior years.