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June 24, 2010

Trustees reduce FY11’s endowment distribution

In the wake of endowment fund losses, the Board of Trustees investment committee this month approved a reduction in endowment distributions for fiscal year 2011, which begins July 1.

In a June 10 meeting, the committee approved a recommendation by Pitt’s investment staff and Vice Chancellor for Budget and Controller Arthur G. Ramicone to reduce the endowment income distribution by approximately 5 percent.

Additional cuts could be forthcoming: the recommendation suggested another 5 percent reduction for FY12.

The trustees committee’s action reduces the distribution for FY11 from $3.99 per share to $3.80 per share. The recommendation for FY12 would decrease the distribution to $3.60 per share.

Pitt’s endowment consists of more than 1,800 individual funds, which provide support for designated purposes such as scholarships, fellowships and faculty chairs. Money donated for such purposes typically is invested as part of Pitt’s consolidated investment pool, with the individual endowed funds “purchasing” a number of shares in the pool — similar to an individual’s investment in a mutual fund. Share values are computed monthly and income is distributed as an amount per share, Ramicone said.

The committee also adjusted the endowment’s asset allocation policy, which last was revised in 2008 (see June 26, 2008, University Times).

Target allocations and permissible allocation ranges for domestic and international stocks were decreased while the percentage of the endowment that may be invested in emerging markets and fixed-income investments was increased.

The new target is 18 percent in domestic equities with a range of 13-23 percent of the endowment’s value (down from a target of 20 percent). The target for international equities is 11 percent (down from 17 percent) with a range of 6-16 percent.

The target for investments in emerging markets equities is 10 percent (up from 5 percent) with a range of 5-15 percent.

The new target for fixed-income investments is 12 percent (up from 10 percent), with a range of 7-17 percent.

Endowment investments in alternative asset classes remained relatively unchanged, with targets for marketable alternatives remaining at 18 percent with a range of 13-23 percent, and non-marketable alternatives remaining at 15 percent, with a range of 10-20 percent. The committee boosted the target percentage for real assets to 16 percent (up from 15 percent) with a target range of 11-21 percent.

Ramicone said the adjustments reflect perceived opportunities for growth over the long term. For instance, raising the target for stocks in emerging markets from 5 percent to 10 percent shows anticipation for growth in the so-called BRIC countries (Brazil, Russia, India and China) and other emerging markets in Asia, Latin America and central Europe.

Pitt’s endowment value of nearly $1.84 billion at the end of fiscal year 2009 was ranked 27th-largest among the 842 institutions surveyed in the National Association of College and University Business Officers (NACUBO)-Commonfund Study of Endowments, down from $2.33 billion at the end of FY08.

Ramicone estimated that the current value of the endowment is slightly more than $2 billion.

—Kimberly K. Barlow

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