To ensure continued, steady support of operations during uncertain economic times — including funding for student scholarships, faculty salaries and academic programs — U-M has slightly lowered its annual endowment distribution rate, effective with the Sept. 30 distribution.
Tim Slottow, executive vice president and chief financial officer, said lowering the distribution rate from 5 percent to 4.5 percent will more effectively preserve the purchasing power of the endowment and ensure long-term stability and growth in distributions.
The change was approved Thursday in a 5-2 vote by the Board of Regents. Regents Julia Donovan Darlow and Denise Ilitch voted against the change. Regent Laurence Deitch was absent.
Darlow said she opposed the change because it does not “adequately address the current public responsibilities of the university and sends the wrong message to the public” during an economic downturn.
Speaking in support of the measure, Regent Olivia Maynard said she had consulted both U-M and outside financial experts and concluded that the reduced distribution rate was “a very important change.”
“This change is a continuation of the university’s prudent financial management strategy that has allowed us to weather the recent recession while avoiding drastic measures taken by many of our prestigious peer institutions, such as faculty hiring freezes, furloughs, program cuts or halting construction,” Slottow said.
The university’s endowment was valued at $6 billion as of June 30, 2009, the end of the 2009 fiscal year. The 10-year annual investment return through FY 2009 was 9 percent, despite a negative 23 percent return on investment in FY 2009.
The university bases its annual payout on a seven-year trailing average market value of the endowment instead of the more typical three-year average used by many universities. Calculating the market value over a longer period and decreasing the payout rate will allow U-M to provide predictable support for university operations as well as endowment growth over time.
Slottow said the new distribution rate would be implemented gradually over a number of years in order to keep the dollar amount of distributions constant on a per-share basis.
