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February 7, 2008

Senate finance committee seeks endowment info

A recent report on the value of the endowments of colleges and universities has prompted U.S. Senate finance committee leaders to request information on endowment growth and student aid spending from Pitt and 135 other colleges with endowments of $500 million or more.

Pitt, with an endowment worth $2.25 billion as of June 30, 2007, was No. 28 in an annual ranking released last month by the National Association of College and University Business Officers (NACUBO) of the value of the endowments of 785 colleges and universities in the United States and Canada.

Due to differences in reporting, the NACUBO report’s stated market value for Pitt’s endowment is less than the figure that appears on the University’s fiscal year 2007 consolidated balance sheets, which valued the endowment at $2.27 billion.

Pitt also placed 28th in last year’s NACUBO survey as its endowment grew from more than $1.5 billion in FY05 to more than $1.8 billion in FY06, a gain of 17.8 percent.

Pitt’s endowment is well above the average, but those at the top of the list make $2.25 billion look small in comparison. No. 1 is Harvard with an endowment worth more than $34.6 billion. Rounding out the top five are Yale, with more than $22.5 billion; Stanford, with more than $17.16 billion; Princeton, with nearly $15.8 billion, and the University of Texas System, with more than $15.6 billion.

The survey found the average endowment rose in value from $442.5 million to $523.8 million, with the median rising 17.1 percent, up from $79.7 million to $91.1 million.

The report can be viewed at

The NACUBO survey found the average change in the value of endowment funds between FY06 and FY07 was 18.4 percent. (The increase does not represent the rate of return on investments; rather it reflects the net impact of investment gains and losses, donor gifts, fund management and investment fees and withdrawals to fund institutional operating and capital expenses.)

Pitt beat the average with endowment growth of 25 percent. “The overwhelming majority of that is in investment gains,” said Vice Chancellor of Budget and Controller Art Ramicone, attributing more than 86 percent of the total increase in value to investment gains. The remainder was made up by a combination of gifts plus transfers less distributions to the schools within the University, he said.

Pitt’s endowment posted investment returns of 21.52 percent after fees in FY07, outpacing the NACUBO average of 17.2 percent as well as several major investment indices.

While the average results were strong, NACUBO analysis noted in comparison that for FY07, the S&P 500 returned 20.6 percent, the Russell 3000 returned 20.1 percent, and the MSCI World Ex US index returned 27.1 percent.

Looking at the longer-term return on its endowment investments, Pitt also came out slightly better than average. The NACUBO report cites an average 10-year compounded rate of return of 8.6 percent. Pitt’s return was 9.37 percent, Ramicone said.


In the wake of the NACUBO survey, Senate finance committee leaders Max Baucus (D-Montana) and Chuck Grassley (R-Iowa) sent an information request Jan. 24 to the 136 U.S. colleges with endowments of $500 million or more. The letter addressed to Chancellor Mark Nordenberg was received at Pitt Jan. 28.

John Fedele, Pitt’s associate director of news, said the University intends to comply with the request.

In a prepared release, Grassley stated, “Tuition has gone up, college presidents’ salaries have gone up, and endowments continue to go up and up. We need to start seeing tuition relief for families go up just as fast. It’s fair to ask whether a college kid should have to wash dishes in the dining hall to pay his tuition when his college has a billion dollars in the bank. We’re giving well-funded colleges a chance to describe what they’re doing to help students. More information will help Congress make informed decisions about a potential pay-out requirement and allow universities to show what they can accomplish on their own initiative.”

While federal law requires most private foundations to pay out 5 percent of their assets each year toward their charitable purpose, no such requirement exists for university endowments.

The Jan. 24 letter stated, in part, “University endowments receive very generous tax breaks under the Internal Revenue Code. We want to better understand how these tax benefits for higher education endowments are improving education and making undergraduate studies more affordable for low and middle-income families today. … Your responses will help us better understand this area and inform our deliberations as we consider potential policies.”

The letter, which requested responses within 30 days, can be found at

The finance committee, which held a hearing on endowment growth last fall, has jurisdiction over tax policy, including the policies that cover colleges and universities. Endowment funds and donations to universities are tax-exempt.

The finance committee request asks schools that pay out less than 5 percent of their endowment annually to “explain how this meets the needs of the current student body.”


Ramicone noted that the Senate committee appears to be focused on investment returns from the prior fiscal year. “That’s just one year,” he said, adding that the past fiscal year’s rate of return “is not the norm, unfortunately.”

Thanks to the recent stock market downturn, returns based on Dec. 31, 2007, figures will be much lower than those posted last June. And the downward trend could continue. “You could look in March and it could be a negative number,” he said.

Investment losses aren’t exactly ancient history. Pitt’s endowment in FY01 and FY02 posted negative returns totaling 11 percent before rebounding in 2003.

The typical management policy is to look ahead at least 10 years, Ramicone said. Based on that timeframe, Pitt’s endowment mix can be expected to post an average 9 percent gain, Ramicone said. NACUBO cited an 8.6 percent 10-year average for the schools in its survey.

“I would hate to see any public policy or conclusions drawn on one year of investment returns,” Ramicone said.

The NACUBO survey showed the average rate of spending from endowments was 4.6 percent overall, and 4.4 percent from the subset of schools with endowments greater than $500 million.

In comparison, Pitt’s distribution formula is conservative, Ramicone acknowledged. In spite of recommendations by the University Senate’s budget policies committee in 2000 that Pitt raise the distribution level, the Board of Trustees has chosen to maintain distributions at 4.25 percent since FY97, when the percentage was raised from 4 percent.

The figure is based on a three-year trailing average to help smooth the effects of market fluctuations. While basing distributions on three- or five-year trailing averages is common, Ramicone noted that Pitt’s distribution is one of a few to have a “floor” that guarantees the endowment will not distribute less money than it did in the previous year. “For budget planning purposes, it’s a comfort to the deans and schools to know they won’t get less than they did in the previous year,” Ramicone said.

“We’re doing our best to meet current needs and future needs,” he said. Ramicone pointed out that as the size of the endowment grows, even as the distribution percentage remains static, more dollars are distributed — most recently, 8 percent more than in the previous year, he said.

Still, the percentage of the endowment that goes toward student aid is not very high, Ramicone said.

Some reasons for that include the relatively small size of the undergraduate student body in proportion to graduate students and those in Pitt’s professional schools, which have no undergraduates.

For instance, the medical school’s endowment is restricted to the School of Medicine and couldn’t be used to fund undergraduate scholarships in Arts and Sciences, Ramicone said.

In addition, portions of Pitt’s endowment historically have come from foundations, which tend to fund societal issues and concerns rather than scholarship aid, he said.

Among the focuses of the University’s $2 billion fundraising campaign is increasing endowed scholarships, he said.

Of Pitt’s $117.6 million in University-funded tuition discounts in FY07, about 15 percent came from the endowment and 85 percent came “out of the University’s pocket,” he said.

Referring to the FY07 financial statements, Ramicone noted that tuition discounts attributable to restricted gifts, endowment earnings and research activities totaled $18.3 million, while tuition discounts from institutional funds was $99.3 million.

“I’d much prefer it came out of the endowment,” he said.

—Kimberly K. Barlow

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