Skip to Navigation
University of Pittsburgh
Print This Page Print this pages

June 25, 2009

Pitt endowment at $1.8B, lower value won't affect distributions

Although the value of Pitt’s endowment has fallen from a year ago, University policy is ensuring that next year’s distributions from the fund will equal the amount disbursed this fiscal year, University Treasurer Amy K. Marsh told the Senate budget policies committee (BPC) last week.

Pitt’s formula for endowment spending calls for the University to distribute a sum equal to 4.25 percent of the endowment’s average market value during the preceding three fiscal years. However, a “floor” built into that policy ensures that recipients of endowment funding will not receive less than in the previous year.

“If you would calculate the three-year average it would be a lower distribution for the coming year,” Marsh said. “We’re holding to that floor, so we will use the same distribution as this year for the coming fiscal year,” she told BPC, although she said it would be “premature” to say whether that will be sustainable in the future.

She said that despite market volatility over the past year, Pitt’s endowment disbursements are more secure than many others. “Certainly over the course of the past year, a number of endowments have gone much lower in their spending,” Marsh said. “Some [institutions] unfortunately at this point in time, because of the amount that gets distributed from the endowment to support their ongoing academic need, have had to really dig deep into their endowment to support it. We’re uniquely positioned with only about 3-4 percent of the overall operating budget really coming from endowment distributions.”

The endowment’s current value is about $1.8 billion, said Marsh, who was an invited speaker at BPC’s June 19 meeting. “We’re up somewhat from December,” but still lower than a year ago.

According to University financial statements, Pitt’s endowment totaled nearly $2.4 billion as of June 30, 2008. According to a University Update issued by Chancellor Mark A. Nordenberg in December, as of Nov. 30, 2008, market conditions had caused the endowment to shed some 22 percent of its value, roughly $528 million.

The status of some $65 million of the endowment, which was invested with discredited investment managers Paul Greenwood and Stephen Walsh, remains uncertain.

Greenwood and Walsh are accused of misappropriating investors’ money in an apparent Ponzi scheme and face federal charges of conspiracy, securities fraud and wire fraud. (See June 11 University Times.)

Vice Chancellor for Budget and Controller Arthur G. Ramicone told BPC that Pitt doesn’t expect to lose its entire investment entrusted to the firm.

Ramicone said the University is awaiting an updated report by court-appointed receivers, due June 30, that is expected to outline a claims process. “As an investor you just wait,” he said. “There are still a lot of unknowns.”

A preliminary report by the receivers already has uncovered assets worth an estimated 60 cents on the dollar, Ramicone said. “They’re still looking for additional assets and they have to convert some to cash,” he said. “There’s a lot yet to be worked out.”

Marsh outlined Pitt’s investment allocations as part of her discussion with BPC that included details on the structure and duties of the Office of Finance.

Her 14-member office is responsible for Pitt’s financing activities, cash and treasury management, investing and portfolio management, endowment and gift accounting and related reporting.

“Staff is primarily responsible for the day-to-day investment, the tactical allocation, the rebalancing. The overall policies, oversight and review of what we’ve done are the purview of the investment committee, delegated by the Board of Trustees,” she said, adding that the office also enlists outside consultants Wilshire Associates and Cambridge Associates.

Marsh said the vast majority of the endowment — about 99 percent — is invested in a consolidated pool of multiple investors, similar to a mutual fund.

The portfolio mix, set by the trustees’ investment committee, is invested 42 percent in public equities with 20 percent in domestic equities, 17 percent in international equities and 5 percent in emerging markets. Ten percent is invested in fixed-income investments and the remainder is in alternative asset classes including hedge funds and investments in real estate, timber, oil and gas and other commodities.

Marsh noted that the mix has changed from a decade ago, when she arrived at the University. Then, she said, Pitt was investing one-third of its endowment in fixed income and 10 percent in alternative assets.

“If you think about what you’re trying to accomplish, these are long-term assets. You’re trying to generate consistent returns so you can distribute, but you’re also trying to keep ahead of inflation to protect the endowment principle,” she said. “You need to be able to return or distribute a fair amount to the schools and also keep pace with inflation. You typically need something higher octane than what fixed-income might typically lend,” she said, acknowledging that most recently fixed-income has been the better performer.

“The bulk of what drives your performance in any one year is your allocation,” Marsh said, adding that the University doesn’t aim to be at the very top for investment returns. “If we can be above just the middle of the road on a consistent basis, we will produce very positive returns,” she said.

Marsh said universities employ a “very big range” of asset allocation policies, adding that Pitt’s is “not dissimilar to many others’.”

She told BPC that it is healthy to look at other policies on occasion, but investing is not an area in which to follow blindly what others are doing: “What’s good for one institution may not be appropriate for yours,” she said.

In a March 23 University Update, Nordenberg said Pitt has initiated a review of its process for choosing investment managers in the wake of the apparent investment fraud by Greenwood and Walsh. (See April 2 University Times.) In the update, he announced that the review would begin with an examination of Pitt’s dealings with the two and would extend to Pitt’s investment manager selection and due diligence practices.

Marsh told BPC procedural changes are being implemented. “We’ve been spending a fair amount of time evaluating how much you do internally versus how much you use experts that focus just on specific background operational due diligence kind of things.” Pitt deals with about 100 different fund managers, she said.

Marsh noted that it is very time consuming and difficult for staff to get as much information on fund managers from public databases as the office would like. For instance, one fund manager has a very common name, making searching time consuming, she said. “That’s the kind of thing where it would be very helpful to have somebody else who is just focused on that,” she said, noting that additional outsiders will be hired.

“It’s not additional expertise — it’s almost like additional staff to help do it — people that are focused entirely on that.”

In other BPC business:

• Outgoing University Senate President John J. Baker reported to BPC that he has some new questions about the School of Medicine’s faculty pay policies.

He said several tenured medical school faculty members have told him they got unsatisfactory performance ratings because they don’t have research grants.

“These are faculty who have applied for grants; they are faculty who are publishing research papers; they are faculty who are teaching, they are faculty who are doing service. So they are doing a lot of things for the University, but they don’t have any salary money on a research grant.”

Baker said affected faculty may file a salary grievance and ask for help from the Senate’s tenure and academic freedom committee. However, the situation could become an issue for BPC if the situation becomes widespread enough that it could be used to break the tenure system, Baker said.

“If someone’s salary is repeatedly cut every year because they don’t have a funded research grant … you basically can destroy them,” he said.

Baker acknowledged that a longstanding medical school policy allows for a salary reduction for those who receive an unsatisfactory performance rating. And, he said, given the higher average salaries in the medical school and the school budget’s heavy reliance on grant money and clinical revenues, it would not be unreasonable to expect faculty to bring in grant and clinical dollars.

However, he took issue with a lack of clearly defined criteria for what constitutes satisfactory performance in the medical school. He told BPC that the school’s base salary guidelines simply state that the default minimum standard is full-time satisfactory teaching. But, what constitutes full-time satisfactory teaching is not defined in the medical school’s policies and guidelines, nor is it stated that the minimum performance standard includes having a funded research grant or a certain percentage of salary covered by a research grant, he said.

Baker said he had no problem with schools requiring their faculty to meet appropriate minimum performance standards, but the standards must be clearly defined and evenly applied.

“The way [the medical school] appears to be going at this is, if a faculty member doesn’t have a funded research grant and their performance is judged unsatisfactory, they can have their salary cut. And that may very well be an appropriate policy, but I feel there should be a limit below which you can’t cut. And I think faculty should be given the opportunity to do other things to make satisfactory performance,” Baker said.

“The issue really becomes whether they are going to apply that policy evenly to everyone in the medical school, because if you target a few people and you don’t apply the policy to everyone evenly, you have discrimination,” he said.

“I know that there’s at least a few faculty that were given an unsatisfactory [evaluation] based on that one thing. If they’re only doing that for a few people and not everybody, that’s discriminatory.”

A request by the University Times for comment from the medical school yielded the following response from spokesperson Anita V. Srikameswaran: “We have evaluation policies and systems in place at the School of Medicine and they are appropriately applied. There are also mechanisms in the school that individual employees can use to appeal or clarify these assessments.”

• Outgoing committee chair Richard Pratt expressed concern that despite his understanding that the provost, who chairs the University Planning and Budgeting Committee, planned to discuss the University’s attribution study or alternatives to it at a UPBC meeting in the fall, a recently announced schedule indicates there is no full UPBC meeting scheduled until 2010.

The attribution study, a University-produced report that outlines the revenues and expenses of Pitt’s academic units and responsibility centers, including athletics, has become a point of contention over the past year.

BPC, which reviewed a draft of the University’s fiscal year 2007 attribution report in executive session in May 2008, sought the public release of the final document as a precursor to inviting Pitt Athletic Director Steve Pederson to discuss athletics funding in an open BPC meeting. (See March 5 University Times.)

According to statements made in March to the University Times by Robert F. Pack, vice provost for Academic Planning and Resources Management, UPBC was questioning the utility of the attribution report and would not take up the discussion again until fall. Pack was not present at the June 19 BPC meeting.

Pratt told BPC, “The UPBC schedule for next year has now been set and it is of the same nature as this year. Namely, there are three meetings in the winter, one in February and two in April, and an information session in the fall. … The only meeting set for fall is this general informational meeting. Whoever is involved with UPBC next year should be keeping this in mind.”

Baker, who as next year’s BPC chair will have a seat on UPBC, said, “If we want the attribution study continued we can bring it up at UPBC,” noting that in conversation with the provost on the issue, “He basically said we could ask for a meeting if we want to.”

Discussion on how BPC would like to proceed can be taken up again at a meeting next fall, Baker said.

• Follow-up by Pack and Health Sciences budget director Richard Henderson was presented regarding a BPC review of units’ compliance with Pitt’s planning and budgeting system (PBS) and salary policies. Answers from several units were unclear in a report BPC requested as part of its responsibility to monitor compliance. Pack contacted two units that did not appear to be in compliance with the PBS requirements with regard to the existence, meeting or membership of unit-level planning and budgeting committees. “He basically requested them to get in compliance,” Pratt reported.

In addition, Pratt said, Pack asked Ramicone to get additional information from the departments that appeared to lack an adequate policy for notifying employees about how they could request reconsideration of salary decisions.

For the areas that indicated they had a process, but did not describe it as requested in the survey, Ramicone said he would request they submit a description. For those appearing to have no policy at all, he will request they develop one and submit a description. Ramicone said his department will start making the requests this summer and report to BPC in the fall.

Henderson, who followed up on areas within the Schools of the Health Sciences, said he had received positive responses from the areas in which PBCs were required but either had not been meeting or had not been holding face-to-face meetings. Henderson said he requested one other area in which the requirement for having more elected members than appointed ones was not being met to adjust the composition of its PBC. He said he will follow up in the fall with those areas.

• Phil Wion relayed a request brought up at Faculty Assembly by sociology professor Lisa Brush, who asked that BPC request gender wage gap information as part of its annual request for salary comparisons for Pitt and its fellow public Association of American Universities peers. (See June 11, 2009, University Times.)

“It seems a not unreasonable request to make,” Wion said, adding that the committee would need to decide exactly what information to request. Salary information for men and women could be represented separately or the committee could request that the gap between men’s and women’s pay be measured as well, he said.

Pratt noted that when the committee meets next fall, the issue should be decided promptly so the desired data can be requested from Pitt’s budget office.

• BPC will not meet in July or August. Baker, who will chair the committee next year, said he would poll members in the fall to decide on meeting dates.

—Kimberly K. Barlow

Leave a Reply