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U-M endowment reaches historic high of $8.4 billion

  • Contact Rick Fitzgerald, (734) 936-5190, rickfitz@umich.edu

ANN ARBOR—The University of Michigan endowment grew to its highest point ever—$8.4 billion for the fiscal year ended June 30. The U-M endowment is ranked as the second largest endowment in the nation among public universities and the seventh largest among all U.S. universities.

The investment return for the endowment was 10.75 percent in fiscal year 2013. That was a significant turnaround from the 0.5 percent decline in the previous fiscal year. Overall, the endowment grew from $7.7 billion to $8.4 billion in fiscal year 2013 on the strength of investment gains and new gifts from donors.

The figures are included in the university's annual investment report, presented today to the Board of Regents. That report also notes that the university's total cash and investments as of June 30 reached $10 billion for the first time.

"Strong performance over a long period of time is consistent with the aim of the university's long-term, diversified investment strategy for the endowment," said L. Erik Lundberg, the university's chief investment officer. "The goal is to generate a level of return sufficient to provide dependable support for operations, while protecting and growing the endowment corpus."

The U-M endowment's long-term performance remains in the top tier among college and university endowments with a 10-year annualized investment return of 10.2 percent. Since the U-M established the investment office 14 years ago, the endowment has had an annualized rate of return of 9.6 percent, compared to 3.0 percent for the Standard & Poor's 500 stock index over the same period.

"Financial markets appear to be normalizing," Lundberg said. "We remain confident in our investment strategy and the endowment's ability to continue to provide support for university operations."

Timothy P. Slottow, U-M executive vice president and chief financial officer, said distributions from the endowment are critical to the overall financial strength of the university, noting that "about 20 percent of the endowment, or $1.7 billion, is set aside for student aid."

Distributions from the endowment that help fund university operations totaled $276 million in fiscal year 2013, up from $270 million the previous year and nearly double those of 10 years ago. Distributions from the endowment total $2.3 billion over the last decade, having increased every year.

The endowment actually is a collection of about 7,800 separate endowment funds that provide support for specific purposes such as scholarships, educational programs or professorships. A significant portion of these funds is provided by donors. Nearly one quarter of the endowment is restricted for use by the U-M Health System with one fifth earmarked for student scholarships and fellowships.

To ensure continuing support for future generations, the funds themselves are invested so part of the annual distribution can provide a steady flow of dollars each year. This long-term strategy also is designed to protect and grow the endowment corpus in real terms.

U-M annually distributes a portion of the endowment's average market value calculated over the last seven years for operating purposes. In 2010, the Board of Regents voted to gradually reduce the portion distributed from 5 percent to 4.5 percent in order to better preserve and grow the endowment over time. This reduction is expected to be fully implemented during the coming fiscal year.

Basing the spending on a trailing average market value instead of the current market value allows the university to stabilize endowment distributions year-over-year so operating budgets are insulated from the volatility in financial markets and receive dependable support over time.

 

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