The University of Virginia’s endowment has increased by nearly $1 billion in the past fiscal year, to $9.5 billion.
Last year the endowment stood at $8.6 billion. According to the University of Virginia Investment Management Company, which manages the endowment fund and its investments, the portfolio’s long-term investments returned 11.4 percent in the fiscal year ending June 30, 2018, outperforming its policy benchmark.
The bigger picture, though, according to Chief Operating Officer Kristina Alimard, is a 20-year annualized return of 10.9 percent.
“UVa’s endowment has been extremely well-managed and is in good shape,” Alimard said.
Universities, like people, could keep money as liquid cash on hand. But about a third of U.S. universities also have endowments, which allow them to invest some money and get bigger returns which, eventually, are turned into scholarships, endowed professorships or capital.
“Say a donor gives you $10,000. You can absolutely spend it right away on scholarships,” Alimard said. “Or, the concept of the endowment is you can take that $10,000, put it in the bank and apply a rule to it… over time, you can give way more than that original $10,000 to students.”
The endowment is split into different buckets of investments. Its best-performing asset class was private equity, which returned a gross 22.9 percent for the fiscal year, followed by public equities at 13.8 percent; natural resources, 10.5 percent; long/short equities, 9.9 percent; marketable alternatives and credit, 7.1 percent; real estate, 5.1 percent; cash and currency, 1.2 percent; and fixed income, 0.1 percent.
“Equity investments provide an opportunity to participate in the growth of public and private companies,” the 2018 report read. “In a growing global economy with low inflation, these investments historically have provided the highest long-term returns. Real assets provide protection in an inflationary environment, and thus tend to benefit a diversified portfolio during periods of a depreciating dollar and/or rising prices or interest rates.”
UVa’s passive policy portfolio benchmark is split up by 60 percent equity, 10 percent real assets and 30 percent fixed income.
Growth in corporate earnings and the passage of tax reform helped increase earnings from global equity markets, according to the annual report. The portfolio allocation is set based on risk tolerance and expected future capital requirements.
“While UVIMCO’s investment strategy has served the University extremely well for decades, the pursuit of excellence calls for constant improvement,” Robert Durden, the company’s new chief executive and chief investment officer wrote in the report. “Accordingly, we will continue to thoughtfully assess how to be the best stewards of University and foundation financial resources given newly available technology, increased competition for returns, and other ongoing shifts in the investment landscape.”
Nationally, 809 institutions have endowments, according to a 2017 study by the National Association of College and University Business Officers. Those endowments totaled $566.8 billion in assets. Most are relatively small: the size of the median endowment was approximately $127.8 million and 44 percent of study participants had endowments that were $100 million or less. UVa’s endowment places it in the top five of public universities.
In 2016, the Board of Visitors funneled about $2 billion of the endowment into the strategic investment fund, which has doled out money for research in autism and addiction, endowed professorships and student scholarships.
The strategic investment fund is intended to fund long-term improvements. At other points, officials have also talked about creating a permanent endowment for AccessUVa, the school’s main program for financial accessibility.
The endowment really began growing under President Frank Hereford Jr. and reached $140 million during his presidency in 1984. Alimard said the company is benefiting now from decisions made decades ago.
“It’s a choice, and it’s a hard choice,” she said of asking people to decide between donating to and benefiting from short-term investments versus long-term investments. “But the idea of an endowment is to not short-change people today and not short-change people in the future. UVa tries to strike the appropriate balance.”