This week, myself and a colleague at The Michigan Daily, staff reporter Kyle Swanson, have been publishing an extensive series on the University of Michigan’s complex, influential, multi-billion-dollar endowment.
As far as I know, this series is the only multi-part series on how a major university endowment actually functions, what it’s comprised of, who manages it and a myriad of other topics related to U-M’s endowment.
Today’s story is the third in the series, and I’ve posted all three below with excerpts of the stories and links to the Daily’s site where you can read complete versions.
Please do not hesitate to contact me with any questions, concerns or ideas regarding the series. Thanks!
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“The multi-billion-dollar backbone”
By Andy Kroll, Daily Investigative Editor
It’s often said that the University of Michigan, the state’s flagship institution of higher education, is about as close to a private school as a public university can get.
On the one hand, this can be attributed to the University’s impressive alumni base and the fundraising success that comes with such a vast alumni network — both characteristics of elite private universities.
But declining state funding has pushed the University further in the private direction. Since the 2002 fiscal year, annual appropriations funding from the state government has decreased almost $97 million when measured for inflation.
As a result, the University has been forced to rely more than ever on its multi-billion-dollar endowment to fund its academic departments, provide financial aid for students, pay for other University operations and essentially keep the University in business.
Yet despite the endowment’s increasingly vital importance to the University, very few people understand what the endowment is, what it’s comprised of, how it functions, who manages it and, most of all, how decisions are made concerning how much of those billions of dollars can be spent at any given time.
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By Kyle Swanson, Daily Staff Reporter
In general, a single question has dominated the debate over college and university endowments in recent years: Why can’t more endowment money be used for financial aid?
At the same time that college and university endowments have reported record-high returns, tuition costs have steadily increased at schools throughout the country — and the University of Michigan is no exception.
Here in Ann Arbor, the University’s endowment has nearly quadrupled in the past 10 years. Yet during the same period of time, student tuition rates have increased by more than 50 percent.
This parallel trend of growing endowments and rising tuition costs is often cited by critics who question whether public universities’ multi-million or multi-billion dollar endowments should classify as not-for-profit, tax-exempt organizations under Internal Revenue Service tax laws.
By Andy Kroll, Daily Investigative Editor
The purpose of the University of Michigan’s endowment is simple.
As University Chief Financial Officer Timothy Slottow wrote in his “Statement on University Investment Policies” in November 2005, “There is one overarching principle related to our endowment and investment strategy: The University’s governing board and officers have a fiduciary responsibility to protect our assets for the long term, so that we may leave to succeeding generations a University at least as strong as the one with which we have been entrusted.
“Therefore, the primary purpose of our endowment,” he concluded, “is to generate the greatest possible income, subject to an appropriate amount of risk, in support of the University’s missions of teaching, research and service.”
But for nearly as long as colleges and universities have had endowments, there has been pressure on these institutions to not only focus on maximizing endowment gains, but also to act as engaged, socially responsible shareholders with an interest in the policies, practices and transparency of the companies and corporations in which they invest.
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“Handling the financial crisis”
By Andy Kroll, Daily Investigative Editor
Like so many other investment portfolios, the years of spectacular returns for college and university endowments abruptly ended last fall as the scope of the global financial crisis grew and markets plunged worldwide.
Now, instead of enjoying 10-, 15- and even 20-percent returns, endowment managers across the country are announcing losses of equal magnitude.
Harvard University has had the largest endowment in all of higher education — worth $36.5 billion as of June 30 — for the last seven fiscal years, according to the National Association of College and University Business Officers, which reports such data online beginning with the 2002 fiscal year. In December, school officials announced that Harvard’s endowment had suffered losses of about 22 percent, or slightly more than $8 billion, and could lose 30 percent by June 30, 2009.
A fellow Ivy League school, Yale University, has ranked second each of the last seven fiscal years; its endowment was worth $22.9 billion as of June 30. In December, the Yale Daily News reported that the university’s endowment had decreased to $17 billion — a loss of 25 percent — and that several capital projects on campus would be delayed.
And the University of California system’s endowment, one of the highest among public university systems, was worth $6.2 billion as of June 30. By the end of December, the UC system’s endowment had lost about 20 percent of its value, down to about $5 billion.
The University of Michigan has experienced similar difficulties. Here, the school’s endowment has temporarily lost about 17 percent of its June 30 value, down to $6.3 billion from $7.6 billion, according to a March investment report filing made by University Chief Investment Officer Erik Lundberg and Chief Financial Officer Timothy Slottow.
