Endowment update for September 30, 2016
Creating a margin of excellence
UMF is a key partner in building excellence among students and faculty and fueling important discovery on all five University of Minnesota campuses. UMF accomplishes this by raising gifts from individuals and organizations, investing funds for maximum impact, and stewarding gifts to ensure they are used as donors intended.
Endowments create a margin of excellence that empowers the University to go far beyond what is otherwise possible. UMF manages the investment and spending of approximately 6,000 endowed funds that provide a stable and predictable source of funding for their designated programs.
Donors may make endowed gifts to create new funds or contribute to existing funds. These funds are pooled and invested together as the UMF endowment.
Managing the endowment
The investment policy, set by the UMF Board of Trustees, seeks to maximize growth while minimizing annual risk and volatility. To achieve these goals, the portfolio is highly diversified and actively managed. A portion of each endowed fund’s value, currently 4.5% of the fund’s average market value over the previous 20 quarters, is made available for spending each year to support the fund’s designated program.
for the periods ended September 30. Total value of UMF endowment: $2.2 billion.
For the one-year period ending September 30, 2016, the endowment pool returned +6.0%. This performance lagged the market benchmark return of +10.7%, due primarily to differences in our long-term strategy and the benchmark’s composition, which is more heavily weighted in equities. The 65/35 market benchmark is expected to outperform the UMF endowment pool when publicly traded stocks post strong results.
Value of UMF endowment over time
The UMF endowment has performed well over the long term, making it possible for funds to provide predictable and stable funding to support their designated programs.
The chart below shows the growth of the endowment, compared with the foundation’s policy goal and a 65/35 market benchmark, illustrated as the growth of $1 since 1990.
The 65/35 market benchmark is a weighted blend of stock and bond indices (65% equities and 35% bonds). To minimize the higher risk inherent in equities, the equity component of UMF’s portfolio is less than 50%. Portfolio diversification is important because the endowment supports current spending. From time to time, simple stock/bond portfolios more heavily weighted in favor of stocks may outperform the UMF portfolio. Our goal is to achieve equity-like returns over the long run but with far less volatility.
Since the inception of UMFIA, our portfolio return has exceeded market benchmark returns by +2.7% annually, with less downside risk.