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June 25, 2015

Endowment distribution up again

Distributions from the University’s endowment fund income are increasing for the second year in a row, thanks to another year of strong performance by the endowment’s investments.

The Board of Trustees investment committee has authorized an income distribution of nearly $4.27 cents per share for fiscal year 2016, which begins July 1. That equates to a 6.5 percent increase, Arthur G. Ramicone, senior vice chancellor and chief financial officer, told the University Times.

The University’s spending policy provides for an annual distribution of the greater of 4.25 percent of the consolidated endowment fund’s three-year average fair market value, or a “floor” of the prior year’s distribution, provided that the distribution is not less than 2 percent or more than 7 percent of the trailing three-year average.

“We dropped off a pretty low year,” Ramicone said. “You get rid of one bad year and add a very good year, and that increases the distribution 6.5 percent.”

Last summer, the investment committee set FY15’s endowment distribution at $4.01 per share, a 5 percent increase over distributions that had remained flat at around $3.80 per share since FY11. (See June 12, 2014, University Times.)

Pitt’s endowment is made up of individual funds designated for purposes such as scholarships, fellowships and faculty chairs.

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.

Asset allocation adjusted

In addition to setting the endowment distribution, the investment committee at its June 18 meeting adjusted the asset allocation policy for three asset classes within the University’s consolidated endowment investments.

On the recommendation of investment staff, the committee approved reducing domestic equities from 18 percent of the fund’s market value to 16 percent; paring back fixed-income assets from 10 percent to 9 percent, and increasing nonmarketable alternatives from 15 percent to 18 percent.

The consolidated endowment fund’s asset allocation policy now calls for:

• A target of 37 percent of the endowment’s market value in equities: 16 percent in domestic equities (with a range of 11-21 percent); 11 percent in international equities (with a range of 6-16 percent), and 10 percent in emerging markets equities (with a range of 5-15 percent).

• A target of 9 percent of the endowment’s market value in fixed income (with a range of 4-14 percent.)

• A target of 54 percent in alternatives: 20 percent in marketable alternatives (with a range of 15-25 percent); 18 percent in non-marketable alternatives (with a range of 13-23 percent), and 16 percent in real assets (with a range of 11-21 percent).

• A target of 0 percent in cash and equivalents (with a range of -5 to 5 percent).

University bylaws grant the investment committee the authority to approve endowment investment guidelines, objectives and spending policies.

—Kimberly K. Barlow