After a severe 21-percent drop in its value last year, University officials announced yesterday afternoon that the University’s endowment rebounded somewhat in the past year, growing 12.3 percent.

Infographic


The growth, from $6 billion to $6.6 billion as of June 30, 2010, begins the recovery from last year’s $1.6 billion loss. However, the figure leaves much more to gain back before the University’s long-term portfolio is back to its 2008 level when the endowment reached an all-time high of more than $7.6 billion.

The return is higher than was expected by University officials like Tim Slottow, the University’s executive vice president and chief financial officer, who told the regents in June that he was predicting an 11.5-percent return on the endowment investments.

The return is on par with what several other universities across the country have experienced, putting the University — with the seventh largest endowment in American higher education and the second largest of a public university — in the top quartile of investment returns for the year.

The University of Virginia saw a 12.5-percent return on its endowment this year, helping to offset its 21-percent loss last year. Similarly, Harvard University gained 11 percent on its endowment this year, which helped make back losses it suffered in 2009 when it lost 27.3 percent of its value. And Yale University saw an 8.9-percent bump this year on its endowment, which fell by 24.6 percent last year.

Presenting this year’s performance results in a report on behalf of the University’s Board of Regents Finance, Audit and Investment Committee, Regent Katherine White (D–Ann Arbor) boasted about the University’s investment returns.

“We have continued to increase our endowment distribution to support University operations year to year,” White said. “Last year we made $256 million in distribution back to the units, up from $244 million in fiscal year 2009 and $227 million in FY ’08.”

White went on to say that over the last five years, the endowment has contributed $1.1 billion back to support University operations.

“Our long-term portfolio performance over the last 10 years is in the top quartile in investment returns for other endowments and we look forward to continuing strong investment returns given our strategic and prudent fiscal policies coupled with our aggressive cost containment measures,” White said.

In an interview following yesterday’s meeting, Regent Andrea Fischer Newman (R–Ann Arbor) said the growth of the endowment is essential to keeping higher education affordable.

“I hope we keep growing it because we need to keep growing it,” Newman said. “We need to do all we can to offset the cost of education and one way to do that is through the endowment.”

Regent Julia Darlow (D–Ann Arbor) echoed Newman’s satisfaction with the endowment’s growth, calling it terrific.

University President Mary Sue Coleman joked in an interview after the meeting that she’s much happier with this year’s results than last year’s.

“I feel a lot better this year than I did this time last year,” Coleman said, laughing when asked for her opinion on the investment returns.

Coleman also said she has a great deal of faith in the University’s investment team — led by Chief Investment Officer Erik Lundberg.

“They have special expertise that they have been able to generate for us consistently … in the top performance,” Coleman said.

In an interview after the meeting, Slottow said that while he was happy with this year’s performance, it is more important to consider investment returns in the long term and not focus solely on returns from year to year.

“We expect to make money some years and we expect to lose money other years,” Slottow said. “Any one year is really meaningless. What really matters is the five- and 10-year performance because we have long-term commitments for expenses and supporting faculty and students.”

To protect itself from unpredictability in the market, University officials implemented a seven-year rolling average in 2006 that averages the endowment’s most recent 28 quarterly statements to determine the value with which the endowment’s payout is calculated. The long-term approach of the calculation helps smooth out peaks and valleys in the endowment’s value — protecting the University from value volatility, as it did when the endowment values across the country fell last year.

The University Board of Regents also approved a proposal over the summer that will lower the rate of endowment spending — taking it down a half percent from a 5-percent annual distribution to a 4.5-percent annual distribution. The measure is being implemented gradually to ensure that the total dollar amount distributed does not fall during implementation.

— Daily Staff Reporter Joseph Lichterman contributed to this report.

Leave a comment

Your email address will not be published.