Loss for UA fund put at 1% for 2020

Endowment now valued at $1.21B

FAYETTEVILLE — The endowment supporting the University of Arkansas, Fayetteville declined in market value by about 1% over the 12-month period that ended June 30, according to an annual survey tracking endowment changes at U.S. and Canadian institutions.

The endowment’s value of $1.209 billion at the close of fiscal 2020 dipped from $1.222 billion at the close of fiscal 2019, according to the 2020 National Association of College and University Business Officers-TIAA Study of Endowments.

Such declines have been infrequent for UA’s endowment over the past decade, according to past data from the annual study. Since fiscal 2011, the year-over-year market value of UA’s endowment fell only in fiscal 2012, 2016 and now 2020.

Donor gifts and grants boost endowments to colleges and universities, but the market value also rises or falls from year to year because of how investments fare and how much is spent. For colleges, an endowment provides long-term support with only a small portion

typically spent each year.

A total of 705 institutions participated in the survey, and the study ranked 717 endowments by market value. The endowment for UA ranked 95th, up one place from a year ago after a revision to the fiscal 2019 rankings.

“We’re pleased to see an increase in the ranking, but more importantly we value the impact that the endowment supports, providing support for student scholarships, graduate fellowships, faculty chairs and professorships and academic programs,” UA spokesman Mark Rushing said in an email.

SPENDING AND INVESTMENTS

The endowment spending rate remained at 5%, resulting in $45 million used from the endowment for the Fayetteville campus, Rushing said. The spending rate has not changed for more than a decade, Rushing has said.

While the rate did not change, UA spent less from its endowment than the previous year. In January of last year, Rushing said $48 million from the endowment was spent in fiscal 2019.

Among schools participating in the endowment survey, a majority — 70% — reported increasing their endowment spending during a time period in which the coronavirus pandemic struck, according to the study.

Rushing, asked what was the biggest factor in the decline in market value for UA’s endowment, referred to the value of new gifts and the amount of investment returns.

“If new gifts and investment returns aren’t greater than the distributions in any given fiscal year, there will be a decrease in market value,” Rushing said.

The endowment study does not include information about new gifts.

Data from the nonprofit Council for Advancement and Support of Education provided to the Democrat-Gazette earlier this month showed a year-over-year decline in the dollar amount of gifts to UA, with the amount dropping to $102.8 million from $136.6 million in fiscal 2019.

The “cash basis” method used in the council’s reporting of yearly giving means that only the portions of multiyear gifts or grants collected within the year are included in the totals. A UA spokeswoman earlier this month said the council’s data does not include new pledges.

In July, UA announced a $194.7 million grant from the Walton Family Charitable Support Foundation to bolster research initiatives. The gift agreement, released under the state’s public-disclosure law, states that most of the grant is to be used for “costs as they are incurred” in establishing the new Institute for Integrative and Innovative Research, but also that $55 million is to be set up as an endowment supporting faculty members and leaders at the institute.

The endowment study listed aggregate data on endowment investment returns.

Rushing said the yearly investment return for UA’s endowment was 2.9%, net of fees.

He said this percent return is “well above the +2.5% return for endowments larger than $1 billion” reported in the endowment study.

Participating institutions in the survey had investments that returned an average of 1.8%, net of fees, for the year, according to the report.

“The one-year performance figure reflects the reality that few market sectors were immune to the steep downturn in early 2020 and most markets had not fully recovered by the time the fiscal year ended on June 30,” Doug Chittenden, TIAA’s executive vice president and head of institutional relationships, said in a statement.

Chittenden also noted that investments picked up in the latter part of the calendar year, “so the FY20 investment return figure likely understates the performance achieved by most funds in calendar year 2020.”

LONG-TERM

The average return for college endowments was less than that of the S&P 500 index, which encompasses 500 top U.S. companies and is considered a benchmark economic indicator. The index had a rate of return of 5.39% for the 12-month period that ended June 30, according to historical data published by Investing.com.

“While stocks making up the S&P 500 stocks do play a significant role in our portfolio, all large university endowments employ a diversified portfolio that includes multiple asset classes in addition to U.S stocks,” UA’s Rushing said.

Diversification “across multiple asset classes is critical to managing endowment portfolios through different economic cycles and challenging investment environments,” Rushing added.

Chittenden in his statement said that “if returns continue to fall short, endowments will need to consider all their possible levers for meeting their targeted return rate.”

Rushing said there is a target annual return rate of 8% for UA’s endowment pool.

“Some years it’s less and some years it’s more. Most importantly, our 10-year trailing annualized investment return as of June 30, 2020, is at a healthy +8.5% easily besting our long-term annualized target of 8%,” Rushing said.

The University of Arkansas Foundation manages investments for an endowment pool that — considering endowed support for additional campuses within the UA System — is valued at about $1.85 billion, Rushing said.

Rushing said $2.5 million in investment management and custodial fees for UA’s endowment were charged for the year to this “commingled endowment investment pool.”

OTHER SCHOOLS

Not all colleges participate in the survey every year. Hendrix College, a private institution in Conway, is not listed in the endowment study despite appearing last year as having an endowment with a market value of $201 million.

Amy Forbus, a spokeswoman for Hendrix College, said in an email that the college’s endowment has grown since fiscal 2019. She did not respond when asked why the college is not included in the most recent survey.

Based on the latest report, the market value for Harding University’s endowment increased to $164.6 million in fiscal 2020 compared with $151.4 million a year earlier. The value increased by about 8.7% for the private Christian university in Searcy.

The endowment supporting John Brown University, a private Christian university in Siloam Springs, increased in market value to $126.7 million, up from $125.6 million the previous year, according to the study, an increase of less than 1%.

The University of the Ozarks, a private institution in Clarksville, saw the market value of its endowment decline to $112.2 million from about $115.1 million the previous year, a decline of about 2.5%, according to the study.

No other endowment supporting an Arkansas college or university topped more than $100 million in market value, based on data from this year’s survey.