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April 18, 2013

Endowment distribution raised slightly

After three consecutive years of invoking the floor in distributing income from Pitt’s endowment, University trustees have set the fiscal year 2014 distribution slightly higher than the current $3.80 per share.

In an April 10 meeting, the board’s investment committee approved a distribution of 4.25 percent of the endowment’s three-year average fair market value, or $3.806664523 per share for the fiscal year that begins July 1.

That represents an increase of about $200,000 to be distributed across the schools, Arthur G. Ramicone, chief financial officer, told the University Times.

The University’s endowment spending policy calls for a distribution each fiscal year of either 4.25 percent of the endowment’s three-year average fair market value or a “floor” amount equal to the prior year’s distribution, whichever is greater, provided that distributions are no less than 2 percent and no more than 7 percent of the three-year average.

Endowment distributions have held flat at $3.80 per share since fiscal year 2011. (See June 24, 2010, University Times.)

Pitt’s endowment is made up of individual funds designated for scholarships, fellowships, faculty chairs and similar purposes. Funds typically are invested as part of the University’s consolidated investment pool, with individual endowed funds “purchasing” a number of shares in the pool and income distributed on a per-share basis — similar to an individual’s investment in a mutual fund.

The distribution of $114 million from the endowment will be divided among 30 million shares University-wide, said Ramicone.

While the increase in the distribution is small, “The good news is that it’s going up,” said Ramicone. Next year’s three-year average will be made up of the 2011, 2012 and 2013 endowment values.

“Next year we drop off the value from 12-31-10, which is a lower value and hopefully next year’s value’s higher,” he said, adding that although the year is still young, “The endowment is doing well so far this year.”

According to figures from the annual endowment study conducted by the National Association of College and University Business Officers (NACUBO) and Commonfund Institute, Pitt’s endowment was valued at just over $2.03 billion in 2010, nearly $2.53 billion in 2011 and almost $2.62 billion in 2012.

The investment committee made no changes to the endowment spending policy, which Ramicone described as “relatively conservative.” He elaborated: “If you’re distributing 4.25 [percent] and inflation’s 3 [percent], you need a nominal return of over 7.25 [percent] over the long term.  And if you want your endowment to grow a little bit because you’re afraid that state support is going to continue to decline or hold flat, then you have to be very conservative in what you distribute.”

NACUBO/Commonfund found the average annual effective spending rate for endowments greater than $1 billion was 4.7 percent in 2012.

The average annual effective spending rate for all institutions in the 2012 survey was 4.2 percent, with public institutions averaging 4 percent and private institutions averaging 4.3 percent.


In a report to Senate Council later in the day, Chancellor Mark A. Nordenberg made note of Pitt’s performance among a dozen “public Ivies” in a recent comparison of endowment returns made by executive search firm Charles Skorina & Company, which specializes in placing financial services and investment professionals.

The NACUBO/Commonfund study found Pitt’s endowment returned 2.7 percent in 2012, above the average institution’s return of -0.3 percent. (See Feb. 7, 2013, University Times.)

Nordenberg noted that of the dozen public institutions with the largest endowments — the University of Texas, the University of California system, Virginia, Pitt, Ohio State, North Carolina, Washington, Penn State, Illinois, Indiana and Minnesota — Pitt ranked No. 4 in investment returns over the past year as well as over the past five years.

In a risk-adjusted comparative ranking, Pitt was No. 5 of the 12.

Nordenberg noted that Amy K. Marsh, Pitt’s chief investment officer and treasurer, got a special mention in the recently released Skorina comparison as “a pay-for-performance star” who, with her team, had generated better returns than both the chief investment officer at Texas, who was paid $3.2 million, and the one at Harvard, who earned $3.6 million.

Marsh’s pay in fiscal year 2013 was raised to $405,000. (See Dec. 6, 2012, University Times.)

—Kimberly K. Barlow

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