Endowment weathers credit crisis

By Aaron Lee

Published: September 27, 2008

University of Virginia officials seemed optimistic over the last week that the school’s multi-billion-dollar endowment investments will weather a threatening financial market.

UVa’s overall endowment pool lost $98 million in August and $93 million in July. Those losses constituted less than 2 percent each month.

University officials point out that the $5 billion investment pool earned $278 million in the fiscal year that ended June 30.

And since June 2006 the endowment pool has returned nearly $1 billion.

“We believe it’s positioned as best as it possibly could be,” said Leonard W. Sandridge, UVa’s executive vice president and chief operating officer.

Sandridge was in New York City a little more than a week ago, meeting with officials from the University of Virginia Investment Man-agement Co.

UVIMCO manages investment of the university’s endowment, which is used to generate income for expenses such as faculty raises, financial aid and supporting academic/athletic programs.

The $5 billion endowment pool managed by UVIMCO includes the primary UVa endowment (63 percent of the total pool) and endowments of other schools at the university.

“The timing could not have been better,” Sandridge said of the meeting scheduled before the recent collapse of several Wall Street investment firms that has led to talk of a $700 billion bailout described as a guard against a massive economic failure.

Overall, UVa’s endowment has been a positive performer for the last two fiscal years, returning 25 percent in 2007 and 6 percent in 2008, Sandridge said.

In an annual report released in June, Chris Brightman, UVIMCO’s CEO, acknowledged the banking and housing market troubles that have mounted since summer 2007 have affected the endowment investments.

“Against this backdrop we’re pleased to have achieved a positive return for the fiscal year. The 6 percent return on our $5.1 billion long-term pool fell short of spending plus inflation, but was respectable in relative terms,” Brightman wrote.

While the university does not set an annual return minimum for its investments, UVIMCO does plan on the school spending 9 percent — expenses and inflation — of the endowment each year.

Looking over 20 years, UVa’s endowment has averaged a 13 percent annual return on its investments, Sandridge said.

He said managing the endowment’s investments is not about the month-to-month fluctuations.

Nationally, that’s the approach many schools take.

“They make decisions that are really focused on the long term,” Brian Flahaven, director of government relations for the Council for Advancement and Support of Education, said.

CASE is a nonprofit group that tracks fundraising trends in higher education.

And for the time-being UVIMCO will not be moving its assets around, Sandridge said. The assets, according to a July UVIMCO investment report, are heaviest in stocks and hedge funds.

Flahaven said many universities take an approach in which they invest in a way that tries to mitigate downturns in the market.

But he adds the hit to endowments is deepened during trying economic times because colleges and universities still have to pay for the programs and positions they created when the financial situation was better.

All this at a time when endowments nationwide are often making up for where tightening state budgets are cutting money for higher education, Flahaven said.

Gov. Timothy M. Kaine recently solicited 5, 10 and 15 percent budget cut proposals from all state agencies, colleges and universities included.

The amount the governor will cut is expected to be announced in the middle of October.

UVa has added $1.7 billion to the endowment during the university’s roughly five-year capital campaign — begun in earnest in 2006 — that hopes to raise $3 billion by the end of 2011.

CASE reports that over the last 20 years the national annual rate of growth in giving to schools was 7 percent.

This year CASE is predicting a national growth rate of 5.3 percent.

And because people continue to give, Bob Sweeney, UVa senior vice president for development and public affairs, keeps traveling to see alumni and other potential university donors, talking up the university even when things are tight.

“We’re keeping ourselves in the game until the time is right,” Sweeney said.