Thursday, October 7, 2010


Wherein Mr. Pfutzenreuter

University of Minnesota CFO

Worries About Endowment Erosion



The value of the University’s Consolidated Endowment Fund, which is used to support academic programs and financial aid, sat at $861.5 million as of June 30, the end of the 2010 fiscal year. This is a 5.5 percent increase over the previous year’s value, but the amount is still well below the $1.1 billion held in June 2008, according to a report being presented to the Board of Regents on Thursday. 

Although the fund increased in value, chief financial officer Richard Pfutzenreuter said that, with its 5.5 percent increase, the fund "underperformed" compared to the market benchmark, which increased by 9.4 percent.

And this is because?

"The numbers improved, but honestly we would have loved to have done better than the benchmark," Pfutzenreuter said.

If wishes were fishes...

The University will pay out approximately 4.6 percent of the fund this year — close to $40 million — for academic support and student aid. But across the nation, there is discussion over whether universities should be using more of their endowment funding to support students.

"The rapid rise in tuition is something that needs to be explained and needs to be addressed," Munson [NEH chairwoman testifying before Congress] said. "These endowments are a wonderful opportunity for that. It seems to me we’re hoarding these funds rather foolishly when they could be effectively spent now to produce more research and to make it easier for a more diverse base of students to attend the college."

"It strikes me as odd that universities would raise tuition costs on students who are having difficulty covering all of those costs while amassing large endowments." [Jonathon Robe, Center for College Affordability]

The University spends a responsible amount of the CEF, Pfutzenreuter said, and it has to be careful not to "erode" the endowment by paying out too much each year.


"That argument about paying more out of the endowment is an old, tired argument," he said.

Kind of amusing that Mr. Pfutzenreuter would blow off suggestions of using more of our endowment as: "an old, tired, argument." The same could perhaps be said about our investment performance as of late?

Where was his concern for erosion of our endowment last year?
Is it acceptable for his shop to have our endowment eroded by more than 25% last year and have our manager described as one of the worst in the country? See: http://bit.ly/cb0ZLj

And so this year we are underperforming by about 5%? from the benchmark? Many of the Ivy League institutions whose strategies (Yale/Swensen) our manager has imitated - see them in the list cited above - have recovered much better than this, e.g.


School/Endowment/Investment Return

Yale $16.7 billion 8.9%

MIT $8.3 billion 10%

Dartmouth $3 billion 10%

Brown $2.18 billion 10%

Harvard $27.4 billion 11%

Cornell $4.4 billion 13%

Penn $5.7 billion 13%

Stanford $13.8 billion 14%

Columbia $6.5 billion 17%

Source: http://bit.ly/9I9m8h

Also of note is that Smith College posted a 16.3% gain in its 1.2 billion dollar endowment. Perhaps some new blood is needed in our endowment management office? From Smith?


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