UC endowment investment payoff worst of 10 richest colleges
Jennifer Gollan, Erica Perez and Lance Williams, Center for Investigative Reporting
The University of California’s $11.2 billion endowment has produced the worst investment returns of the 10 richest colleges in the country over the past decade, an analysis by the Center for Investigative Reporting shows.
From the 2004 through 2013 fiscal years, the university earned an average of 7.3 percent on the combined endowment of the system and individual campuses, while the other nine colleges with the largest endowment funds – which include the public University of Michigan and University of Texas – averaged 10 percent.
In 2013, the UC endowment’s return improved dramatically. But better performance over the previous nine years would have meant tens of millions of dollars a year to spend during a decade when the public university system saw deep cuts in state funding.
Thousands of employees in the 10-campus system lost their jobs and students’ education costs more than doubled.
Over the past decade, Yale and Columbia universities earned the highest returns, 11 percent. Stanford University earned 9.9 percent. If the University of California had done as well as the top-ranked institutions, it would have earned an additional $5.4 billion over the decade.
Peter Taylor, UC’s chief financial officer, said the university has to invest more conservatively than its peers because it is a public institution.
“Would I have liked to have earned 10 percent a year? Absolutely,” Taylor said. “But how risky should a public university be?”
In recent years, Taylor noted, the university has become less conservative and performance has improved. As the market rebounded during the last fiscal year, the university system earned 12.2 percent, second to Yale University among the 10 largest endowments.
The UC system’s investment performance has drawn criticism in recent years. From 2006 until her retirement last summer, Chief Investment Officer Marie Berggren was in charge of managing much of the university’s endowment.
The issue flared during one particularly heated teleconference last February, when T. Gary Rogers, the former CEO of Dreyer’s Grand Ice Cream and a longtime UC benefactor, complained that the university had the nation’s worst-performing large endowment fund.
“As I’ve been saying for some time now … I think it’s irresponsible for us to continue to ignore this absolutely bottom-of-the-heap performance year in and year out,” Rogers said.
Concerns downplayed
Berggren did not respond during the meeting. Several regents downplayed Rogers’ concerns.
“It has never been quite as crystal clear as Gary is making it look right now,” said Regent Paul Wachter, financial adviser to former Gov. Arnold Schwarzenegger and now chairman of the Board of Regents’ Investments Committee.
Berggren did not respond to requests for comment on the Center for Investigative Reporting’s findings.
Three times in the last decade – in the 2008, 2009 and 2012 fiscal years – UC lost money. During bull markets in 2005 and 2006, UC’s rate of return was at least 10 percentage points lower than that of Yale.
Missed out on windfall
As state revenue plummeted in the recession, the Legislature slashed its annual appropriation to the university system by $900 million between 2008 and 2012, or more than 25 percent. About 4,200 employees were laid off, 9,000 job openings went unfilled and students faced repeated tuition increases.
If the endowment had matched the returns of an average performer in the Center for Investigative Reporting analysis, the university system would have increased its endowment by an additional $3.2 billion over 10 years. The university spends roughly 5 percent of the endowment’s value each year, UC records show, so average investment performance could have supplied a windfall of about $682 million.
More than half of the UC endowment – a total of $11.2 billion as of June – is supervised by the regents and managed by the chief investment officer. Investment officers on individual campuses manage the rest.
Read the full article here: SF Gate
