U pursues safer investing for endowments

The recent recession hit the University’s fund harder than those at other schools.

Patricia Drey

The University is moving toward a less volatile investment strategy to improve its endowment fund, University chief financial officer Richard Pfutzenreuter said.

The University’s consolidated endowment fund was one of the country’s top performers from 1994 to 1999, but the recession and the events of Sept. 11, 2001, hit the University-managed fund harder than universities with more stable investments, Pfutzenreuter said.

The combined total of the University’s three endowment funds decreased approximately 1 percent between 1999 and 2002. Other Big Ten public universities’ endowments increased by approximately 17 percent on average during the same time period, according to a 2003 University of Florida report.

A percentage of the endowment funds go toward operational costs including faculty and research assistant salaries. Because many people at the University are dependent on the funds, it is important to control fluctuation, Pfutzenreuter said.

“Because in any one year things can go up and down, we try to look at maintaining the value of the endowment over a long period,” he said.

Endowment funds contain large amounts of money from donors who would rather have the University invest the money than use it immediately.

The University uses a portion of the investment profits each year.

For approximately a year and a half, Stuart Mason, associate vice president for the University’s Office of Assessment Management, has been in his position and lowering risk has been the theme, he said.

“Prior to my coming we never knew if we were going to make a lot or lose a lot,” Mason said.

To lower risk, managers are lowering the percentage of money invested in public stocks and bonds and increasing the amount of alternative investment money, he said.

Alternative investments are more stable and can include timber or bankrupt companies’ debt, Mason said.

Mason said he hopes to raise the percentage of money in alternative investments from the current 16 percent to 25 percent by the end of the calendar year. The current

target percentage for alternative investments, which the University Board of Regents set, is 25 percent. After reaching the target, Mason said he will probably encourage the regents to increase the target to 35 percent.

Most of the nation’s well-performing funds are at approximately 40 percent in alternative investments, Mason said.

Under the regents’ policy, all gifts to the University go through its foundation, which has its own separately managed endowment, Pfutzenreuter said.

This means the consolidated endowment fund no longer receives new contributions and has not for approximately 10 years, he said.

The Minnesota Medical Foundation, the fund-raising arm of the Academic Health Center, also has a separate endowment fund.

The University of Minnesota Foundation strategy is to grow its endowment for the long term, said Martha Douglas, the foundation’s communications director.

“Our philosophy is that’s what an endowment is all about, is to build a base for the future,” Douglas said. “That’s what distinguishes it from the annual sources of income coming into the University.”