U endowments lose $350 million

by Nathan Halverson

The economy has not been kind to the University.

During the last two years, the University’s consolidated endowment fund has lost $350 million due primarily to tumbling stock prices.

“Basically our decline in value is a function of what’s happening in the markets,” said Chris Suedbeck, assistant director in the Office of Asset Management.

Overall, the University and its foundations lost 7.8 percent in the value of their endowment funds last year, according to the National Association of Colleges and University Business Officers.

Money disbursed from the funds is used for scholarships, endowing chairs and providing funding for research.

And that means some researchers and students might see their money pools dry up.

“If market values stay flat, or even go up slightly, what we are focusing on is, yes, disbursements will come down,” Suedbeck said.

“That would be a problem,” said Andrew Odlyzko, director of the Digital Technology Center, who holds an endowed chair. “It’s something we hope not to face but we might have to.”

And the decreased support could mean fewer scholarships and even tougher times for students, who face another tuition increase next year.

“(My scholarship) has helped me out a great deal,” said Rachel Carlson, a clothing design junior, who receives the Papa John’s endowed scholarship. “My parents can’t really help me out. They can’t really afford to.”

The amount disbursed from the funds is determined as a percentage of the endowments’ average value during a three-year period.

And because the average value of the last three years is starting to decline, less money will be disbursed in the future.

“The reason we do that market average is to minimize the impact the economy can have on that cash flow,” said Cindy Kaiser, vice president of finance for the Minnesota Medical Foundation.

The University has three major endowment funds. The largest endowment is run by the University of Minnesota Foundation, a

nonprofit organization located in the Gateway alumni center. The University runs the consolidated endowment fund. And the Minnesota Medical Foundation, also nonprofit, runs the third fund, which is smallest.

The three funds are invested in various markets such as stock, bond and real estate.

All donations given to the University go through either the University of Minnesota Foundation or the Minnesota Medical Foundation.

Gifts given for perpetuity are placed in one of the endowment funds, which disburse 5.5 percent of their value annually.

Some donations are given for immediate use and do not go into the endowment fund.

The 7.8 percent loss in the endowment fund’s value understates the negative impact the stock market has had. The University’s foundations have received record donations, which offset some of the fund’s losses.

For instance, the University’s consolidated endowment, which receives no incoming donations, has lost nearly half its value. In March 2000, the fund was worth $840 million. Today, it’s worth $490 million.

In contrast, the two foundations’ endowment values have gone down significantly less because contributions have softened the market’s impact. In 1996, the Medical Foundation collected $15.8 million in donations. But from 2000 to 2002, the Minnesota Medical Foundation collected nearly $135 million.

The University’s fund lost more than the others partly because it invested more aggressively.

Suedbeck said that two years ago their “very aggressive exposure” to equities and venture capital made them the number one foundation in the nation. “Subsequently over the next two years we have had difficult performance because of our focus on equity.”

In contrast, the University of Minnesota Foundation more conservatively allocated investments, putting more money in areas like hedge funds and bonds.

As a result, their investments have returned 0.4 percent and 0.7 percent in 2001 and 2002, at a time when virtually everyone else lost money. However, even the small return they managed to eek out isn’t enough to cover the amount of money dispensed from the funds.