University endowment loses 7 percent

College endowments across the country are reporting substantial losses, and the University of Minnesota is no exception. The UniversityâÄôs Consolidated Endowment Fund shrunk by 7.1 percent in the third quarter, and has declined 12.1 percent since September 2007, leaving just over a billion dollars in the fund. The third quarter includes July through September. Because payouts from the endowment are 4.6 percent of the endowmentâÄôs average value over the past five years, and the endowment has grown from less than $600 million to its current value of more than $1 billion during that period, the payout will actually continue to increase despite the recent losses. However, continually shrinking investments could cause problems in the long term. The University of Wisconsin FoundationâÄôs President Andrew Wilcox and Chief Investment Officer David Erickson reported that their endowments had lost 12 percent by Sept. 30. On Oct. 28, the President of Amherst College, Anthony Marx, reported that their endowment had lost roughly a quarter of its value since the end of June . The University of MinnesotaâÄôs Chief Investment Officer Stuart Mason said his department is taking a number of steps to reduce the amount of risk in their investments because of the difficult financial situation. These steps include pausing new private investment and getting out of certain types of investment funds. The endowment is invested fairly evenly across five diverse areas, as specified by University Board of Regents policy. They are domestic and international equity (the stock market), fixed income (like bonds), real assets (actual physical properties) and private capital ventures. Though none of these areas turned a profit for the University in the last quarter, they performed quite differently. International equity lost 24.6 percent while private capital investments lost less than 1 percent, and are actually in the black for the year, with a 6.3 percent return. Private capital and real assets are relatively new investment areas for the University, Mason said. When he started working for the University in 2002, the endowment was 85 percent invested in stocks, 15 percent in bonds and it had lost heavily in the market for a couple years. He said he convinced the Board of Regents to change their policy on the endowmentâÄôs makeup because the price of stocks depends on too many variables, and investments in private capital and real assets have a more stable value. âÄúIf we own an office building thatâÄôs full and someoneâÄôs paying rent, IâÄôm not worried about it,âÄù Mason said. The private capital portion of the fund finances successful entrepreneurs doing everything from debt collection to growing timber in exchange for a portion of the profits, Mason said. One element of those agreements is a commitment to provide specified amounts of cash to these projects over time to finance expansion and operations. When these commitments are called in, they are usually offset by income from other companies. But recently, poor market conditions have caused a lot of the managers to sit on products rather than sell them at reduced prices, reducing the fundâÄôs cash revenues. No real money has been lost, Mason said, but if conditions donâÄôt improve, the availability of liquid investments could become an issue. ThatâÄôs why the fund is pausing investments in this area. The Consolidated Endowment FundâÄôs money comes from rents and royalties from property gifted to the University by the government, and intellectual properties owned by the University. Private gifts to the University are managed by the University of Minnesota Foundation, or the Minnesota Medical Foundation.