While the unsteady economy has significantly reduced the endowment funds of many universities, the University of Michigan has suffered relatively minimal losses.
Chief Investment Officer Erik Lundberg said the University’s endowment funds remained comparatively stable in the past two years because the University invested heavily in bonds and real estate, unlike other universities, which tend to focus on domestic stocks.
“The overriding difference is lower exposure to stock and companies listed in the United States in favor of other investments that were less affected by the downdraft of the economy,” he said. “As an investor in markets, we were affected by that drop, but less so than other endowments, and much less so than the broader equity market.”
An endowment consists of private donations that a university invests in external sources to gain more revenue. These investments consist of stocks, bonds and/or real estate. The University never spends the principal of these multi-million dollar investments, only the interest they accrue. Each year, about 5 percent of the University’s endowment makes up 5 percent of the $2.9 billion operating revenue, Lundberg said.
Development Office Spokeswoman Judith Malcolm said endowment donations provide the University with significant financial security because the funds never expire.”That money is there forever for the dean or the department to use,” she said. “The beauty of an endowment is that it is a gift of longevity. It will last as long as the University lasts.”
The first donation intended for the University’s endowment was made in 1898 by Elizabeth Bates, a physician from Port Chester, N. Y. Although she did not attend the University, Bates left money for the Medical School because it was one of the few at the time that educated women.
In the past year, the University’s endowment funds fell 4 percent from $3.4 to $3.3 million. This drop succeeded a 6 percent fall in the previous year from $3.6 million to $3.4 million.
Lundberg said that while the University enjoyed considerable financial success during the bullish market of the late ’90s, it shifted its investments when stocks began to dip to maintain its fiscal holdings. In 2000, the endowment fund jumped from $2.5 to $3.5 million and has preserved most of its gain despite the current recession.
“What’s important when you look at investment returns is to look at them for a long period of time,” he said. “When the market turned bear, the University did a good job of holding onto its gains.”
Lundberg added that although the endowment fund has suffered only minimal losses, the University will still need to restrict its spending because of the significant reduction in state funding anticipated for next year.
While Michigan has preserved much of its revenue, other universities have not been so fortunate. According to a recent study by the National Association of College and University Business Officers, the wealthiest colleges have suffered the greatest losses. The Massachusetts Institute of Technology lost 12.6 percent of its holdings while the University of California lost 10.7 percent.