In a year scarred by the global COVID-19 pandemic, the University of Michigan’s endowment continued to provide funding for operations totaling $391 million, up more than 6 percent from a year earlier. That funding for operations has increased in each of the past 20 years.
Chief Investment Officer Erik Lundberg told the Board of Regents on Oct. 22 the investment return for the university’s long-term investment portfolio, which is mostly made up by the endowment, was 2.3 percent in the 2020 fiscal year that ended June 30. The endowment was valued as $12.5 billion, almost unchanged from $12.4 billion a year earlier.
With a 20-year annualized return of 7.4 percent, U-M ranks in the top decile for long-term investment performance among university endowments, where the median annualized return over 20 years is 5.5 percent. This long-term 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 — increased to $391 million in fiscal year 2020, up from $368 million a year earlier. Endowment distributions to support operations total $5 billion over the past two decades.
The university’s endowment is a collection of about 12,000 separate endowment funds that provide support that is restricted for specific purposes such as scholarships, educational programs, research and professorships.
About 22 percent of the endowment is earmarked for student scholarships and fellowships. Another 20 percent is dedicated for use by Michigan Medicine and other clinical activities.
“The positive relative performance of the long-term portfolio compared to the median endowment suggests that the Investment Office has added $1.2 billion in value over the past decade and more than $3.4 billion since the office was established in fiscal year 2000,” said Lundberg, who has led that office since its inception.
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 is ranked 99th — down from 94th a year ago — making it much smaller than many private school peers while supporting a much larger number of students.
Looking to the year ahead, Lundberg said the high valuation for many investments will make it difficult to achieve strong investment returns. However, “we remain confident that our investment strategy, coupled with the endowment distribution rule, will continue to generate steady and growing distributions to support the mission of the university.”
There are no recommended changes to the model portfolio this year so the model approved in October 2019 will continue for a second year. It will be composed of 25 percent equities, 18 percent absolute return, 12 percent fixed income, 25 percent private equity and 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.