Endowment shows strong returns amid financial-market growth

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The University of Michigan’s endowment contributed $404 million for operations last fiscal year, with the funding supporting a wide range of university functions, including student scholarships, faculty, research, libraries, infrastructure and clinical care.

Annual endowment distributions — funds available for university units to spend — have increased in each of the past 20 years, totaling about $5.2 billion.

The university’s long-term investment portfolio, which consists mostly of the endowment, has a 20-year annualized return of 9.5 percent. That performance compares to the median 20-year annualized return of 7.3 percent among college and university endowments.

“The university’s long-term investment strategy combined with its endowment spending policy serves to insulate operations from expected volatility in the financial markets and provides for a stable and predictable level of spending distributions over the long term,” said Geoffrey Chatas, executive vice president and chief financial officer.

Chatas reported to the Board of Regents on Oct. 21 that the university’s endowment climbed $4.7 billion to a market value of $17 billion in the 2021 fiscal year that ended June 30.

During a year in which university endowments across the country experienced tremendous growth, the investment return for U-M’s long-term investment portfolio was 40.6 percent.

The investment gains appear to be in line with what peer institutions are reporting this year, said Chatas, who stepped into his role earlier this month.

“We’re very pleased with the strong performance, but we also know that investment income, particularly in the short run, can be very volatile, and investment performance needs to be understood in the context of looking at those returns over time,” said Chatas, noting that as recently as 2016 the endowment went down in value.

The university’s endowment is a collection of more than 12,000 separate endowment funds, which provide support that is restricted for specific purposes such as scholarships, educational programs, research and professorships.

On a per-student basis, U-M’s endowment is ranked 92nd among all U.S. universities, according to a recent report from the National Association of College and University Business Officers. Unlike several private school peers that have similarly sized or larger endowments, U-M supports a much larger student body and campus community.

President Mark Schlissel noted that the endowment provides more funds annually for the university than the state appropriation.

“U-M’s financial strength is inextricably linked to our ability to deliver on our public mission through excellence in all we do,” Schlissel said. “(The endowment) enhances our academic programs and other activities, allows us to provide large amounts of financial aid to keep a Michigan education affordable and helps to set us apart in public higher education.”

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