University gets big endowment fund yield, but downturn on horizon

The University of Missouri System’s endowment had an 18 percent rate of return in fiscal 2007 and produced a $38.9 payout, up $4.2 million from the previous year, according to Nikki Krawitz, the system’s vice president of finance and administration. More than half of the annual endowment payout goes to the Columbia campus.

The 18 percent total return beats the one-year average rate of return for university endowments by about one percentage point, according to the National Association of College and University Business Officers’ 2007 Endowment Study.
The Board of Curators uses a hybrid of market indexes as a benchmark to gauge investment success. The endowment rate of return was 0.7 percent below the benchmark.

The university’s endowment fund, worth about $1 billion, comprises thousands of donations toward scholarships, technology, research and other purposes, which are pooled together and invested. Each year, approximately 5 percent of the trailing twelve quarter average market value is distributed and pays for the scholarship, research, or other purposes the donors intended.

Over the long term, the endowment’s goal is a 9 percent total return. Annual returns have fluctuated in the last decade. Last year’s return was the highest since 2003.

“We had very high returns in the late 90s,” Krawitz said. “(The year) 2000 was the IT bubble burst. We did better than the benchmarks on that. My guess is that in 2008, if the market continues as it does right now we’ll have a negative year.”

For the fiscal year ending June 30 2007, the endowment’s biggest gains came from a 46.2 percent yield on emerging markets investments and a 21 percent rate of return on investments in the real estate markets.

“Our board has really become much more savvy in the last few years,” Krawitz said. “They’ve moved away from domestic, publicly traded equity toward absolute return, private equity and TIPS [Treasury Inflational Protected Securities], which is an inflation-protected investment vehicle.”