The University of Chicago’s returned $500 million on investments in fiscal year 2010, said a University report released Wednesday, helping its endowment to an 18.9-percent gain that outpaced many peer institutions.
The endowment was valued at $5.54 billion as of June 30, 2010, the end of fiscal year 2010.
Coming after a year in which the endowment lost relatively little in the midst of a deep recession, the almost 19-percent jump is six points above the median gain for similar investment funds and almost seven above the S&P 500, which gained 12 percent on the year.
“We’re very pleased with the performance, pleased that the market has come back from the lows of ’09,” said Mark A. Schmid, the University’s chief investment officer since 2009.
It’s the second year of comparatively strong financial performance by the University. In fiscal year 2009, the endowments of both Yale and Harvard fell about five percentage points more than the University’s, which lost 21.5 percent of its value.
Schmid credited the endowment’s performance to new Investment Office staffers, a diversified portfolio, and increased liquidity—all of which meant the University’s investment strategy took on less risk.
“Relative to the strategy we had employed in prior years, we have reduced the amount of stock investment, equity investment, by about 10 or 12 percent over the past year,” said Schmid, referring to a process that began in 2008 and which has continued through his tenure.
He noted that the strategy induced less risk than other universities’ endowments.
However, the $500-million gain won’t be felt in the University’s budget until next year, due to a risk-managing mechanism in the way the endowment can be spent.
Each year, the Board of Trustees earmarks a small percentage of the endowment for the University’s operating budget. But endowment returns are allocated the year after they come in, the one-year lag intended to balance long-term growth with spending on day-to-day operations. Moreover, the amount is based on a three-year average; fiscal year 2009's 21.5-percent loss only began to affect endowment spending on the budget this year. It will continue to be felt over the next two years, even as this year’s gains are factored in.
Schmid called that strategy a “smoothing mechanism” that means “we can more prudently plan budgets.” The Administration credits the strategy for its smooth transition into the recession as compared to that of Harvard, for example, which had to freeze faculty salaries and suspend a large construction project for lack of funds. The University of Chicago trimmed departmental budgets, but made no such drastic changes.
Schmid was hired June 2009, a week before the end of the 2009 fiscal year. His office brought in eight new staff members and hired investment managers, who aren’t on the Office’s staff but manage the University’s assets day-to-day, to work in areas like hedge funds and stocks, Schmid said. He said that since the 2008 downturn, “the new focus is risk management.”
“Approximately one-half of the new people are going to focus on risk management,” he said. “The other half that we brought in is in charge of investment strategy and investment policy.”
Schmid said the investment strategy itself was highly diversified, investing in private and international equity, real assets like real estate, and others.
There’s also been a focus on keeping some University assets liquid: “The team has done a really nice job of bringing liquidity to a level that’s really successful,” Schmid said, a strategy that “allows us to very prudently, very easily make the payout to the University.”
He said the 29 Investment officers have 250 years of investing experience between them.
The University’s endowment performed better than most funds with assets greater than $5 billion, according to figures put out by Wilshire Consulting, a firm that tracks institutional investments; the median gain for those funds was just over 13 percent.
The University performed better than many other schools: In September, Yale reported its endowment rose almost nine percent in fiscal year 2010, while Harvard’s rose 11 percent. Those endowments remain the largest in the country, at $16.7 billion and $27.6 billion respectively.
Like the U of C’s, Stanford’s endowment performed above the median, rising 14.4 percent. Columbia University did better—its 17.3-percent endowment boost came closest to Chicago’s.
Unless the endowment was at $4.66b the last fiscal year, the endowment didn’t grow by 18.9%. According to Business Week and the University, the endowment closed at $5.09b last fiscal year, which would make this an 8.9% increase, NOT an 18.9% increase (big difference!), which means we performed considerably worse than our peers except for Yale, who performed similarly abysmally.
Why don’t people do simple arithmetic to check facts like this? It’s not just the Maroon. Business Week made the same mistake! Few in the journalism business have any accountability, it seems. (To push the issue a bit further, a $500m increase from $5b is obviously not a 20% rise. This is grade school arithmetic, and you’re UChicago students. What’s wrong with you?)
JE,
The entire endowment is not invested. Some is spent on operating costs, some can be held in reserve. The investment return (18.9 percent, or whatever it may be in a given year) is, of course, calculated against the portion of the endowment invested, and not against the entire value.
Now did you really think BusinessWeek and all of the other publications and institutions reporting on endowments were calculating these figures wrong, and you alone were doing it right? You did, didn’t you? It’s okay, you’re in good company, there are a lot of indignant idiots out there.
Well, then, we’re not outpacing our peers, we’re just using a different formula than our peers. I apologize for my incredibly reasonable assumption that since we’re comparing ourself with our peers, we would be ethical enough to use the same system. For instance, look at NU’s endowment report on their website.
Northwestern claims gains of 12.4%, where their total endowment went from $5.6b to $6.3b. That is an ACTUAL 12.4% gain (6.3/5.6 ~1.124), not just the amount invested. If NU actually reported the amount invested, this number would be much larger, significantly moreso than the 18.9% that UChicago reported.
(Same with Yale on its website: 16.7/(16.7-1.4) ~ 1.089. I would post the links but the Maroon apparently has a policy against it.)
So did we actually outpace other universities, or are we just reporting our data differently (invested gains vs. total gains)? Looks like it’s the latter rather than the former. Which should be familiar with anyone following the University, esp. its US News rankings. If all universities posted invested gains, or alternately total gains, and compared them with each other, UChicago would lose badly. In other words, Podgenut, you’re still neglecting the fact that Chicago is trying to conceal its poor performance in the market and are confusing the fact that other universities are posting their total gains and we’re just posting our invested gains.
Good of you to bring up the example of Yale, which throws another wrench into the works. Even if an institution invests every cent of its endowment, it will still spend some of the ROI on operating costs, and so total growth of the endowment will be a bit less than ROI.
Lookie: Yale’s endowment at the end of FY09 was $16.3b; at the end of FY10 it was $16.7b. That’s 2.5 percent growth, not 8.9 percent. The 8.9 percent figure comes from dividing the $1.4b ROI by the $16.3b FY09 value. To find the actual growth of the endowment, you add about $100m in donations to the ROI, take away $1.1b in operating costs, and boom! $400 million (or 2.5 percent) increase in the endowment.
Of course, Yale’s news office (as distinct from the Yale Daily News) reports the 8.9 percent ROI and not the comparatively meager 2.5 percent growth. Virtually all university news offices–including our good friends over in the Admin building–do the same. Actually, the headline for Yale’s press release says the endowment “grew” by 8.9 percent which, as we’ve learned, is not true.
At a glance, every report I see about Northwestern’s endowment refers to total growth, not ROI. (Hopefully you’ve picked up on the distinction by now. I’m guessing you’re not a math major, my friend.) That said, none of the reports I saw originated in Northwestern’s news office, which I suspect would also release the more-impressive ROI.
Caveat emptor, I’m not an accredited investment manager, nor do I hold an advanced degree in any quantitative field. I’m simply an enthusiastic young man with a sixth grade education and an abiding love for all God’s privately-funded institutions of higher learning.
And yet, tuition continues to rise? Workers’ hours get cut?
Way to play the role of the typical UofC econ students with blinders on the side of your heads that don’t see past the numbers and books. Take a quick sec and think about the actual wallets stuffed by the money and consider those still left in the dust.
V was not a socialist.
He was an anarchist.
By the way, the practice of padding endowments is practised at all Universities, those both liberally and conservatively inclined. Really a completely tangential subject to your diatribe – it has nothing to do with the free-market economics taught at the UC.
Now, if they would only stop calling me asking for donations….