U won’t spend higher percentage of endowments

The University of MinnesotaâÄôs endowment is struggling like other universitiesâÄô nationwide, but that doesnâÄôt mean the recession will lead to an increase in the percentage of the fund used each year, University officials said. While a handful of political leaders, such as Republican Sen. Chuck Grassley from Iowa, have called for wealthy universities and colleges, like the University of Minnesota, to spend a larger percent of their endowments âÄî the University is not planning to follow suit. According to Grassley, higher payouts would benefit both universities and students, so he is calling for modest payout requirements. âÄú[Colleges] might forget the very recent years of double-digit gains or that many of them still have a lot of money in the bank,âÄù the senator said in a press release. âÄúThe weak economy makes a strong case for more endowment spending on studentsâÄô aid. If an endowment is a rainy day fund, itâÄôs pouring.âÄù Fewer than 4 percent of universities and colleges, however, plan to increase the rate of endowment spending in the fiscal year 2009, according to a December 2008 National Association of College and University Business Officers Endowment Study follow-up. The University is among those not planning an increase in endowment spending. Currently, the University spends 4.5 percent of its endowments every year, which matches the national average. The reason they will be sticking to spending 4.5 percent of the fund comes down to math, Chief Investment Officer Stuart Mason said. The University has found through âÄúexhaustive analytical studiesâÄù that by using a smaller percentage of the endowment each year, more money is built up and the amount of actual dollars used each year increases, despite the percentage staying the same, Mason said. âÄúStudies suggest we are better able to grow the endowment and little individual endowments if the payment today is slightly less, leaves more behind, and grows faster,âÄù Mason said. âÄúAnd it isnâÄôt very long before the actual dollars you are paying out is so much bigger, what youâÄôre actually paying out âÄî 4.5 percent âÄî gets to be a much larger number than paying out 5 percent along the way.âÄù Chief Financial Officer Richard Pfutzenreuter puts the UniversityâÄôs reasoning a little differently, but with the same core point âÄî using only 4.5 percent will produce more money in the long run. âÄúItâÄôs a promise that we give to people that give money that the value of their endowment will be retained in perpetuity,âÄù Pfutzenreuter said. âÄúIt may have ups and downs at any given year, but over the long haul, between generations, it will have the same value.âÄù Although he acknowledges the difference in opinion by some senators, Pfutzenrueter said expert opinion is with the University. âÄúExperts, the people that I certainly trust more than myself on this one, are saying that what we are doing has a higher probability of maintaining that intergenerational equity and a higher payout,âÄù he said.