UT System endowment falls 5.3 percent

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Photo Credit: Lillian Michel | Daily Texan Staff

The UT System’s endowment returns shrunk 5.3 percent to $24.1 billion, according to data released last Wednesday by an association representing university business officers. 

The National Association of College and University Business Officers (NACUBO) found the system’s endowment, which is managed by the University of Texas Management Company (UTIMCO), underperformed compared to the average rate of return for the 2015 fiscal year, slipping into third place behind Yale University in terms of endowment size. The endowment funds are used to finance critical University operations, such as faculty salaries, financial aid and scholarships. The system’s endowment underperformed compared to the average rate of return across all U.S. college and university endowments, 2.4 percent. 

UT received about $350 million last year from the Permanent University Fund, and the negative change in market value should not significantly affect this year’s returns, according to Scott Kelley, UT System’s chief business officer. 

“Our investments tend to be a little more conservative, meaning that we would lose less money in the down markets and generate a little less return in the up markets,” said Kelley. “You don’t know how long it will ride it [the down market], but historically, it’s always come back.” 

Endowment returns for 2015 reflect the lowest endowment returns in three years, according to the NACUBO report. John Walda, NACUBO president and chief executive officer, said the lower average is of great concern. 

“On average, institutions derive nearly ten percent of their operating funds from their endowments,” Walda said in a statement. “Lower returns may make it even tougher for colleges and universities to adequately fund financial aid, research and other programs that are very reliant on endowment earnings and are vital to institutions’ missions.”

The loss in the endowment can be attributed to lower oil and gas prices and the stock market, according to Bruce Zimmerman, CEO of UTIMCO.

Funds managed by UTIMCO also include the Long-Term Fund, which helps fund student support services, such as graduate and undergraduate scholarships and fellowships at UT-Austin. The negative endowment returns will not affect the distribution of student support funds at UT-Austin this spring. However, if endowment returns remain consistently low over several years, they may affect the amount distributed to fund student scholarships and fellowships, according to Jamie Cantara, executive director of endowment services at UT-Austin.

Cantara said the market value for student support endowments (which include undergrad scholarships, undergraduate research, graduate fellowship and graduate research) is $755 million,  and $37 million is distributed every year to faculty scholarships, fellowships and more for students. These figures do not include all of UT's endowments for faculty, program support and book funds.

“It’s been consistent, and that’s where that averaging over a long period of time helps,” Cantara said. “Students should care about it.” 

It is too early to predict whether lower investment returns will continue for the 2016 fiscal year, according to Ken Redd, NACUBO’s director of research and policy analysis.

“We do know that financial markets have been very volatile for some time now, and that volatility may continue into the future,” Redd said in an email.

This article has been updated since its initial publication to reflect a clarification in student support endowments.