Schools’ endowments net double-digit gains; URI is biggest winner
The stock market’s improved performance in 2004 helped Rhode Island colleges collect double-digit percentage returns on their endowment investments.
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The University of Rhode Island Foundation was the biggest winner, enjoying a 24.9 percent return on its endowment investments in 2004 that brought its total fund value to $63.86 million.
Statewide, the average percentage return was 17.27 percent. That figure includes eight of the nine colleges and universities in the state that have endowments. Brown University could not be reached for comment.
Nearly all the financial officials who oversee endowments at the institutions attributed the endowment return growth to the stock market’s performance in 2004.
“Our percentage growth was all return. We had very few additions during the year,” said Bill Hall, vice president for business and financial affairs at Salve Regina University in Newport. Salve’s return on investment was 18.6 percent, bringing the fund to $30.5 million.
At the Rhode Island School of Design, endowment funds are in 13 different investments, said Amelia Koch, the school’s associate vice president for finance.
“It’s very broad-based,” Koch said. “Most of our portfolio was up, we had good action in our hedge fund, small-cap and large-cap investments and even our fixed income showed an increase.” RISD’s return on investment was 17.4 percent. At the end of the 2004 fiscal year, the fund was $253.2 million. Koch added that RISD has seen investment returns since a “significant downturn” in the January 2002 quarter.
School financial officials also said moving equity funds from U.S. investments to international equities helped bolster returns.
Johnson & Wales University’s net endowment funds decreased by 5.8 percent, but that number is deceiving, said Johan Grahn, the school’s senior endowment analyst.
“We pulled out $30 million to invest in the new campus in Charlotte,” Grahn said. Even though the fund didn’t increase in dollar amount, the university saw a 15.1 percent increase on their endowment investment return.
Grahn attributes the growth of the return to the fact that the university has “been moving away from traditional (portfolio) allocations to more esoteric.” He said the school has invested more heavily in international equities (20 percent of the portfolio). Thirty-four percent is in U.S. equities, 19 percent is fixed income, 16 percent is in alternative assets and 10 percent is in inflation hedging.
In prior years, the J&W endowment portfolio consisted of 70 percent in equity and 30 percent in fixed income. Now, though, the school is trying to diversify and is less invested in U.S. equities, Grahn said.
J&W posted losses on its return in 2001 and 2002, when the stock market went down. The return was minus-9.1 percent in 2001 and minus-9.5 percent in 2002. In 2003, the return was up 2.6 percent.
“We took a hit when the market went down, but we believe a better diversification will keep the endowment more steady and looking forward,” Grahn said.
At Roger Williams University, the National Association of College and University Business Officers numbers show the school’s endowment grew by 41.3 percent to $68.42 million. However, James Noonan, the school’s vice president of finance, said only 21.7 percent of that growth was from the investment return. The balance of the growth came from gifts and excess funds.
Noonan declined to detail the allocation of the endowment assets, but said it is a moderate allocation that’s intended to be safe and get decent returns.
In 2003, the return on investment for RWU was roughly 8 percent.
Noonan said no major changes were made to the allocation of funds.
“(2004) was a good year, and as a rule, the stock market was better … with the market conditions and good market managers that were able to take advantage of the situation,” Noonan said.
The URI Foundation, which saw a 24.9 percent return on its investment, made some changes between 16 and 18 months ago that benefited the fund.
“We took money out of fixed income and allocated it to the international sector – we thought it would provide the best growth,” said Bob Coleman, executive director of the URI Foundation. The endowment fund is now invested 80 percent in equities and 20 percent fixed income.
Coleman said the foundation does things the “old-fashioned way,” and uses an asset allocation model.
“We look at the tone of the economy and the tone of the market and attempt to position the equity segment to take advantage of the nuances of economic recovery and in sectors of the stock market that appear to be undervalued,” Coleman said.
When the foundation reduced its fixed-income exposure, it increased international equities and mid-cap investments, Coleman said. The fund’s managers change asset classes only periodically, he added.
“We’re not chasing hot classes or hot managers – that would be irresponsible,” Coleman said. “We look at the long-term picture.”
Bryant University reallocated funds to high-yield bonds, which contributed to an investment return 17.2 percent higher than 2003’s 4.6 percent growth, according to Barry Morrison, vice president for business affairs/treasurer.
Bryant’s endowment is invested 58 percent in equities, 21 percent in bonds and the balance is in alternative assets.
Morrison said the university did make some investment strategy changes during 2004 that, coupled with market performance, helped the return grow.
The school changed fund managers within the different allocations and invested in more high-yield bonds.
The tech stock tumble that contributed to the market downturn in 2001-02 did affect Bryant’s endowment, as it did most other universities. Bryant was somewhat protected then, Morrison said, so the endowment investments “weren’t hit as hard as one might expect.”
In 2005, the endowment’s managers will try to increase their alternative investments to give the endowment more stability, Morrison added.
Providence College, which had an endowment balance of $107.76 million at the end of fiscal 2004, saw 13.1 percent growth on its investment returns.
Michael Frazier, chief financial officer and vice president for finance and business, said the gain was a combination of repositioning the endowment portfolio and the market’s performance.
“We changed some managers because we wanted to be more precise in where we were placing our money and we reduced our position in the fixed-income area,” Frazier said. The endowment is invested 40 percent in domestic equity, 18 percent non-domestic, 21 percent fixed income and 21 percent in real estate, hedge funds and private equity.
The biggest change to the fund from 2003 was a shift away from fixed income. The endowment returned just 2.5 percent on its investments that year.
Catherine Hanrahan, fiscal manager for the Rhode Island College Foundation, said the endowment saw a 10.2 percent return in 2004, up from 2.3 percent in 2003.
Hanrahan, too, attributed the growth to the market’s performance.
“Also, toward the latter part of the fiscal year, components of the equity holding were changed,” Hanrahan said. Prior to the changes, the endowment was invested primarily in large-cap. It was changed to a mix of large- and small-cap.
Sixty-three percent of RIC’s endowment is invested in U.S. equities. The balance is in fixed income.
