The costs of grants, renovations, scholarships and financial aid packages can create enormous financial budgets at the University which need to be managed carefully. The University is able to succeed in its endeavors thanks to its large endowment funding and prudent investing decisions. The University's endowment has consistently ranked in the top five for public universities and in the top 20 for all institutions of higher education. The University of Virginia Investment Management Company, or UVIMCO, has led the University to the upper echelon of college endowment funding and continues to provide valuable resources to the school.
First, it is important to understand the term "endowment." Endowment is money that has been donated to the University for the purpose of enhancing the institution. The money often comes from alumni and can be applied toward scholarships, fellowships, endowed professorships and many other areas. Since the University is a state institution, a substantial amount of its endowment also comes from the commonwealth of Virginia. Sometimes stipulations can be enforced on the endowment. This limits the options for how the funds can be allocated, the time they may be instated and/or how much money can be spent at any given time.
During the last fiscal year, the University was one of the leading institutions with a 24.3 percent rate of return. UVIMCO was so successful in its strategies that the University "became the first fund to recover all of the losses from the 2008-2009 financial crisis, and to show growth to a new high value," according to Harvard Magazine. Per student endowment also ranks the University as the nation's largest for public universities. The University's endowment at the end of the 2011 fiscal year - June 30 - was about $5.3 billion.
Instead of directly investing the endowment, the University administration relies on UVIMCO to perform this task. UVIMCO is composed of a board of 11 directors and meets four times each year. The board's goal is to create an average annual return which exceeds the distribution of funds. Although UVIMCO may not manage endowments as large as Princeton or Yale, the company was recently commended in the Harvard Magazine for its high rates of return.
UVIMCO's investing philosophy is the key reason for its success. First and foremost, UVIMCO focuses on long-term investments. Its conservative strategy shields its investment portfolio from many of the drastic market fluctuations as witnessed frequently in the news. Price is another key aspect of UVIMCO's philosophy, as the company continually invests "in securities, themes and asset classes with current prices below their fundamental values," according to UVIMCO's annual report. The final keystone of its investment principle stresses diversification across asset classes, themes and investment managers' expertise.
UVIMCO allocates its long-term pool over three general asset classes: equity such as stocks and venture capital investments, which receives 62 percent of the allocation; fixed income and absolute return such as cash and bonds, which receives 24.8 percent; and real assets such as real estate, which receives 13.2 percent. The overall allocation of these funds allows for the best possible returns and also diminishes the portfolio's largest risks, inflation and deflation. Within UVIMCO's equity distributions, it devotes the most attention to long and short equity funds at 22.2 percent, while public and private equity comprise 20.3 percent and 19.6 percent, respectively.
Last June marked the end of the 20-year long term pool, which recorded an annualized return of 12.5 percent. This was greater than the endowment spending rate and the company's return standard of 7.9 percent. Of the long term pool, 16 percent was devoted to long-term operating reserves at the University, 22 percent was allocated to university-related foundations, and the remaining 62 percent comprised the University's endowment.
The bottom line is that the investment philosophy and the quality of people within UVIMCO have achieved outstanding returns when compared to other colleges. Their investment strategies have helped fund our university during the recent economic struggles and they are on a stellar path to help keep our school among the most elite and sought after in the country.
Matt's column runs biweekly Tuesdays. He can be reached at m.robertson@cavalierdaily.com.
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