University of Virginia Endowment

Private support has always been a critical factor in making the University of Virginia one of the top public institutions of higher education in the nation. With state support declining from 27 percent of the University's budget to 13 percent in the past seven years, the need for private gifts has never been greater.

The endowment is the University's sustainable source of private support. Endowment assets are created by donors who want their gift to benefit both current and future generations of the University community, as well as by the Board of Visitors from funds under their control. The endowment has grown ninefold over the past twenty years, from $91 million in 1976 to more than $823 million as of June 30, 1996. It consistently ranks among the five largest of public institutions and among the thirty largest of all colleges and universities in the nation. Equally important, the endowment per student of $44,791 has consistently ranked as the largest in the nation for a public university with more than 2,000 students. Adding trustee-held and endowment assets of University-related foundations pushes the total private assets held for the support of the University above the $1 billion mark.

Over the past fiscal year, some $34.6 million was distributed from the endowment, accounting for 4 percent of the University's total budget. More than 47 percent of the endowment is designated for instruction. The next largest share, nearly a quarter, is not designated for a specific use, providing the needed flexibility to meet the changing requirements necessary to maintain a premier university.

Figure 4.
Twenty Years of Endowment Growth (in millions)

The mandate of every endowment is to distribute its wealth equally to current and future generations, in perpetuity. The University must balance the competing objectives of providing income to meet the needs of the current University community and providing growth in the underlying assets so that the endowment will provide the same level of support in inflation-adjusted dollars to the University in the future. Likewise, the long-term return on the endowment should meet inflation plus spending. The endowment has been able to achieve these objectives through sound, although not always conventional, investment management, and by keeping the spending rate at approximately 4 percent of market value. Despite tremendous growth in the endowment since 1972, it was not until the 1990s, after nearly fifteen years of double digit returns, that the endowment was able to overcome the effects of the high inflation rates of the late 1970s and early 1980s.

The Finance Committee of the Board of Visitors is responsible for setting investment policy for the endowment and for hiring investment managers to implement their policy. The most important investment decision is how to best allocate funds to the various asset classes in order to maximize return. The endowment has benefited by the board's decision, in the early 1970s, to commit a then unconventionally high percentage, 75 percent, of endowment assets to equities. Beginning in the early 1980s, the board began investing in other asset classes, including international equity, real estate, and venture capital. Today's portfolio is broadly diversified with a 45 percent target allocation to domestic and international equity, 10 percent to real estate, 20 percent to fixed income, and 25 percent to alternative equity investments, such as partnerships specializing in venture capital, distressed securities, event arbitrage and hedging activities. The board's asset allocation decisions, coupled with the performance of the managers, has placed the performance on the endowment in the top quartile of endowment returns over the past twenty years.

The returns below are for the Growth and Income Fund, the University's main endowment pool, representing $647 of the total $823 million.

Comparative Performance of Growth and Income Fund versus Selected Indices
 5 Years10 Years20 Years
Growth & Income Fund13.612.213.6
Inflation Plus Spending7.17.89.8
Cambridge Endowment Mean13.211.312.5

Go on to Growth Over Time

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