U-M endowment up $1B over last year with strong rate of return


With a rate of return on investments near the top among all university endowments and new investments through the Victors for Michigan fundraising campaign, the value of the University of Michigan’s endowment climbed to $11.9 billion, $1 billion more than a year ago.

Chief Investment Officer Erik Lundberg told the Board of Regents on Thursday that the investment return for the university’s long-term investment portfolio, which is mostly made up by the endowment, was 10.7 percent in the 2018 fiscal year that ended June 30.

With a 20-year annualized return of 9.6 percent, U-M ranks in the top decile for long-term investment performance among university endowments.

This performance, Lundberg said, was sufficient to sustain and grow the endowment in real terms, net of spending.

Endowment distributions — the money university units and affiliated organizations get to spend — totaled $346 million in fiscal year 2018, up from $325 million a year earlier. Over the past 20 years, endowment distributions are approaching $4.5 billion.

The university’s endowment actually is a collection of more than 11,000 separate endowment funds that provide support for specific purposes such as scholarships, educational programs, research and professorships.

For example, roughly $2.4 billion, or 21 percent of the endowment, is dedicated for use by Michigan Medicine and other clinical activities. Another $2.5 billion, or 22 percent, is earmarked for student scholarships and fellowships.

“The positive performance of the long-term portfolio (9.6 percent) compared to the median college and university endowment (6.5 percent) suggests that the Investment Office has added an additional $3.1 billion of value since it was established in fiscal year 2000,” said Lundberg, who has led that office since its inception.

To simplify the $3.1 billion figure, Lundberg said a $100 investment 20 years ago would have returned $350 in the average university endowment. That same $100 invested in the U-M endowment would have returned $600.

Regent Kathy White, chair of the board’s Finance, Audit and Investment Committee, said this year’s strong investment performance was another indication of the university’s excellent financial management.

“We have great confidence in the university’s overall approach to investments and in the stewardship of these important financial resources,” she said.

Recent endowment gifts are part of the university’s Victors for Michigan fundraising campaign, which earlier this month reported raising more than $5 billion, making U-M the first public university ever to raise $5 billion in a single campaign.

Also Thursday, the Board of Regents approved a “model portfolio,” for the university’s long-term portfolio, which provides investment allocation ranges for each individual asset class.

The approved model portfolio for the year ahead would be composed of 28 percent equities, 18 percent absolute return, 12 percent fixed income, 12 percent private equity, 10 percent venture capital, 10 percent real estate, 8 percent natural resources and 2 percent cash. Within each category there is an acceptable range to allow for modest shifts throughout the year. The board also has the flexibility to adjust the ranges as new investment opportunities arise.

Presenting the model portfolio to the board for approval was one recommendation made recently by the accounting firm PwC after an external review of the university’s investment functions.

“One of the reforms proposed by PwC in their review of the functions of the Investment Office is to have the Board of Regents approve a model portfolio for the university’s long-term portfolio in its endowment. This is a good reform,” Regent Andrew C. Richner said at Thursday’s meeting.

“By putting this item on our agenda and approving the portfolio on an ongoing basis, the Board of Regents will keep current on the risks associated with the investment portfolio and further mitigate risks associated with noncompliance with university policy.”

To ensure continuing support for future generations, the university’s endowment distribution policy, together with its long-term investment strategy, provides a steady flow of dollars each year for operations. This long-term approach also is designed to protect and grow the endowment corpus in real terms.

The U-M endowment is ranked the ninth largest among all U.S. universities and third among public universities after two university systems. On a per-student basis, U-M’s endowment has been ranked 84th, making it much smaller than many private school peers while supporting a much larger number of students.


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