Des Moines Register
10-29-07
ISU, UNI beat goals for return on funds
For the second straight year, the University of Iowa misses an endowment
benchmark.
By ERIN JORDAN
REGISTER IOWA CITY BUREAU
Iowa's public university endowments, worth more than $1 billion, earned doubledigit investment returns in the last fiscal year.
Despite the growth, the University of Iowa Foundation endowment missed its
benchmark for the second year in a row.
Investment returns at the U of I, Iowa State University and the University of
Northern Iowa ranged from nearly 17 percent to 18.3 percent for the fiscal year
that ended June 30. Larger returns mean university foundations can give more
money to their universities for student scholarships, faculty salary supplements
and programs.
"We're very pleased with our results," said Lisa Eslinger, vice president for
finance at the ISU Foundation.
The ISU Foundation endowment, valued at $436 million on June 30, had the
highest return rate of the three public university foundation endowments at 18.3
percent and surpassed its benchmark return rate of 17.3 percent.
The foundations set benchmarks to determine whether fund managers are doing
a good job managing the investment mix of the endowments, which are pools of
money donated to the universities throughout the years. The long-term goal is to
preserve the value of the gifts while earning money through investments.
ISU benefited in fiscal 2007 from putting more money in emerging markets,
which include China, India and Brazil, Eslinger said.
The U of I Foundation endowment, valued at $692.2 million on June 30, had the
lowest return of the state university foundations at 16.9 percent and narrowly
missed its benchmark of 17.1 percent.
Tiffani Shaw, chief financial officer for the U of I Foundation, said the foundation's
investment team added international investments to its portfolio in fiscal 2007,
but was not vested enough to fully benefit from the jump in international.
"That could have affected our performance in relation to some of our peers,"
Shaw said.
The UNI Foundation endowment, valued at $55.8 million, saw a return rate of
17.4 percent, which passed its benchmark of 15.3 percent.
All three university foundation endowments fell below the 20.6 return rate of the
Standard and Poor's 500. However, the foundations' financial officers say the
S&P isn't the best benchmark for university endowments because it measures
only stocks, and endowments have a broader mix of investments.
Universities with the largest endowments, including Harvard, Yale and M.I.T.,
came under fire last month from Iowa Sen. Charles Grassley, who said the
schools should spend a higher percentage of their endowments on financial aid
for students.
Grassley proposed that the richest schools spend at least 5 percent of their
endowments, as private foundations are now required to do, or lose tax
exemption for endowment earnings. The average spending rate for university
endowments of $1 billion or more in fiscal 2006 was 4.6 percent, according to the
Chronicle of Higher Education. At the end of that year, 62 universities had
endowments of $1 billion or more, the Chronicle reported.
In Iowa, UNI spent 3.24 percent of its endowment in fiscal 2007, ISU spent 4.6
percent and the U of I spent 5 percent of its endowment on university needs. The
foundations use different formulas for determining payouts, but they usually
involve an average of several years.
Drake University, which had a $153.3 million endowment at the end of fiscal
2007, spent 5 percent of the 12-quarter average for its endowment, said Victoria
Payseur, Drake vice president of business and finance. She said she doesn't
favor a minimum payout because there are years when the market tanks and the
endowment managers must maintain the fund's value.
"You don't always have years when the market is strong," Payseur said. "You
have to balance between current students and future students."
Reporter Erin Jordan can be reached at (319) 351-6527 or ejordan@dmreg.com