UR Finances 101: Frequently asked questions
WORK IN PROGRESS

What is the endowment, how is it used
and how can we get more of it?

The endowment is a collection of financial assets, currently valued at about $1.3 billion, that the university has accumulated over time through gifts and return on investments. It does not include assets such as the campus itself, the books in the library, and lab equipment, items which do not generate income and which we have no intention of selling.

This was slide 45 in President Seligman's Annual Report to the Faculty Senate of September 9, 2008.
FY08 ended on June 30, 2008.

Most gifts received by the university are directed toward a specific school or program, and the wishes of donors must be respected. Therefore the endowment is divided among the various schools, and income from one part of the endowment cannot be used to support another part of the university.

A small portion of the endowment (12%) is unrestricted, meaning it originated from gifts not directed to a specific part of the university. In recent years it has been the university's policy to use most of the income from this portion to support the College. Smaller portions are used to support the Warner and Simon Schools.

Each school has to decide (in consultation with the central administration and the Board of Trustees) how much of its share of the endowment to spend each year. There is a tradeoff here: spending more enables a school to do more of what it wants to do, such as hiring more faculty and raising salaries, but spending too much means there will be less available in the future.

This question of balancing present and future needs is sometimes called the intergenerational equity issue. It is of special concern to the Board of Trustees, which is ultimately responsible for the long term welfare of the university.

The endowment spending rate for each school is the portion of its endowment (more precisely, the average value of its endowment over the past 5 years) that it spends in a given year. (The dollar amount is called the endowment draw.) The university's goal is make this between 5 and 6 percent, since that rate is believed to be sustainable indefinitely. In some schools with UR it is currently higher.

How can we grow the endowment? The growth of the endowment is affected by three variables:

1. Return on investment. The university's investment strategy is handled centrally by the Office of Institutional Resources led by Doug Phillips, with oversight by the Investment Committee of the University’s Board of Trustees. There is more information about this below.

2. Gifts to the endowment. In the long run, gifts matter more than return on investment. In the 20^th century the university benefitted greatly from major gifts by George Eastman, Joseph Wilson and others. The growth of the endowments of peer institutions has likewise been influenced by sustained gift income. We will discuss this in more detail on the advancement page. Note that only a portion of gifts received by the university go to the endowment; some are used to support ongoing expenses.

3. The endowment spending rate. As remarked above, this varies from school to school, and is the subject of careful attention by the administration of the school, the central administration and the Board of Trustees.

The university's investment strategy

This pie chart shows how the endowment is allocated to various types of investments. Phillips' report gives more information about our investment strategy.

Here is a graph comparing our endowment's performance with those of various unnamed peers since 2000.

Between 2000 and 2007, our endowment grew by about half a billion dollars from $1.245 to $1.726 billion, but the relative size of our endowment declined from 33rd to 39th, including a decline from 35th to 39th last year.

This is slide 2 from Joel Seligman’s January 2008 report to the Faculty Senate.

How can the rank of our endowment by declining despite outperforming many of our peers on the investment front? The answer is that their endowments are getting more in gifts than ours is. For more information about this, see the advancement page.

Here are some links to more detailed information.

UR Endowment Website

(This is the source of the pie charts and graph shown above)

• Managing UR's endowment by Doug Phillips. An overview of the endowment, its recent history and UR's investment strategy with an emphasis on the role of gifts in endowment growth.
• Reports on the endowment's performance for each year since 2002.
• Investment Policy and Board of Trustees Investment Committee Policy on Investments in Companies Operating in Sudan.
• Growing the Rochester Endowment, another good introduction to the endowment and its history.

Last revised December 11, 2008.

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