New endowment figures?

Endowments are typically measured according to their value as of June 30 each year. We are two weeks away from the end of this current fiscal year. Anybody know how our endowment has done this year?

So far, the performance looks as though it has been very weak…on the order of 3% growth or so (but at least not a loss). Huge caveat: the university has a lot of money in vehicles which will not be valued until a full quarter after the fiscal year end…sometime in around September 15th. The number is generally not published until quite late in the year and the “official” NACUBO figure comes out in late January/early-February.

Given the weakness of the growth ( http://regents.umich.edu/meetings/05-15/2015-05-II-1.pdf ) and the size of the annual payout and the probable contributions
( http://regents.umich.edu/meetings/05-15/2015-05-III-1.pdf ) it seems likely that “we” will be treading water.

What will be interesting is that several schools which were close to Michigan had huge years last year. Generally, a big year means the mark to market was overly aggressive and the following year will be comparatively weak. Given that general scenario, Michigan had a mediocre year last year but this year is also following suit, so it will be interesting to see if the high flyers come back to earth and if Michigan continues to be, on average, competitive or if “we” have lost some tempo.

Over the last 10 years Lundberg has been money in the bank, we’ll seek if he has lost part or all of his form this year.

BTW: the caveat is usually offered that the endowment differentials are not “returns”. The change in the
endowment is due to: contributions (“voluntary support”), expenditures (operational flows) and investment returns (generally income and mark to market gains/losses). Only one component of the change is due to return delta so the year over year delta is not “return” in the more normal sense used in financial markets.

Thanks for the insight blue85. It will be interesting to see if we scratch the $10 billion mark, and to see how we did vis-a-vis other universities’ endowments, particularly those closest to us (MIT, Northwestern, Penn, UT-Austin, Columbia, Chicago and Notre Dame).

I think the “target” we are chasing is probably MIT as they have been next in the ranking for some time. Their institutional money management has been fairly volatile, but has offered superb returns. We haven’t quite equaled the returns but have done OK in terms of matching them relative to voluntary support.

We tend to fluctuate over/under/around Northwestern and Penn. The school which we are tightly coupled with is Columbia: roughly the same size endowment and just finished with a $4Bln campaign while Michigan is $2.7Bln into a $4bln campaign.

Penn and Columbia are the largest of the schools which you mention and so the per capita is somewhat more comparable (they are both well ahead of UM). MIT is the next dollar target, but like Northwestern and Chicago and Notre Dame is quite a bit smaller…so all of those schools are in much better shape on a per capita basis.

UM’s endowment is around $10Bln, but to be competitive with the above schools on a per capita basis should be around $25Bln. Optimally, we would be at around $40Bln to $45Bln. At $225,000/student, 5% spend is roughly $11,250/student/year and should be more like 4 times that to be competitive.

Given UM’s population, and assuming a roughly 5% spend rate, each additional $Bln equates to roughly $1,000/student/year in additional spending. Thus a $35Bln number would pretty much cover the current tuition line. Problem is that at the historical growth rate – which has been quite solid, therefore likely to slow/revert – by the time we get to $35Bln, there will be a great deal of erosion via inflation.

However, over the last 30 years, UM has been the fastest growing endowment in the country and might reasonably get there ($40Bln) in 25 years or so – roughly 1 generation after two doublings.

Several footnotes to the above: 1) the in-state/out-of-state tuition margin is roughly $43K versus roughly $13K or roughly $30K/student. Over 43,000*.6=25,800 students, that is a huge dollar figure; it would be nice to see the state subsidy go away ($285MM/year or so) and to see UM float the tuition to market and capture that subsidy. At this juncture, only 10,000 students/year from Michigan are applying out of 50,000 and rising, and the dollar subsidy as well as the qualification subsidy are very, very expensive for UM – despite the blather of the citizens of the state, UM puts far more into the state than it takes out and floating the tuition would solve part of that disparity; 2) at $285MM/year, a 30 year bond issue at 4% would be worth roughly $5Bln in current dollars…I’d like to see the state float a bond issue and give the $5Bln proceeds to UM (contingent on removing the annual subsidy) and have UM reserve no more than 40% to 50% of the seats to in-state students; at the end of 30 years, UM would then go private and both eliminate the seat reservation as well as chop off the bottom 33% of the matriculating class.

Eliminating the bottom 33% of the class would result in instant Ivy status (as to entering metrics) on ALL matriculants – not just the upper 2/3 as is currently the case – resulting in a solid financial footing for UM as well independence for UM.

I agree blue85, and I would not be surprised if that actually happened (Michigan going private). I also think that if it did happen, it would be several years from now, and the commitment would be to take in less than 40% of the class from in-state.

But it is difficult to compare Michigan’s current endowment to that of a smaller private university because economies of scale are not factored in, nor is state funding. When those two criteria are taken into account, I do not think schools like Brown, Columbia, Cornell or Penn are necessarily better off. The difference would be that Michigan is limited as to how it uses its vast resources when it comes to financial aid. Private universities can given it to all those who need it while Michigan, since it is already automatically giving it to all in-state students, is more limited when it comes to giving need-based aid to OOS students. In all other ways (faculty, facilities, classroom experience etc…), I think Michigan’s financial resources match those of its private peers.

Im curious, what would be the advantage of Michigan going the route as described above? How does looping off the bottom third of students help the university or the state? What is the value of Ivy status and who benefits from this value?

I don’t think there is a need to go the private route to attain Ivy status. Michigan’s resources, faculty, facilities and student selectivity are pretty much on par with any top university. I think blue85 was referring to exact statistical data (acceptance rate of 15% as opposed to 27%, SAT range of 1350-1550 as opposed to 1300-1500, ACT range of 30-34 as opposed to 29-33, average class size of 18 as opposed to 26, endowment per student of $300,000 as opposed to $225,000. None of the differences above are noticeable or noteworthy, but unfortunately, high school students and overly concerned parents are swayed by them, and if Michigan is to attract gifted students, it could stand to benefit from “playing the admissions game”.

That being said, I have always maintained that the University should increase the number of OOS students from 2,000/class to 2,500 per class, the number of international students from 400 per class to 800 per class and reduce in-state students from 4,000 per class to 2,000 per class.

As to who benefits? Well, everyone except Michigan residents.

The University benefits as it is currently subsidizing in state students. Considering the amount the University receives from the state, it should be enrolling well under 10,000 undergraduate in-state student, as opposed to the current 18,000. That’s a 8,000 undergraduate in-state student windfall! Just look at it mathematically. In state students pay $30,000/year less in tuition than OOS and international students. There are currently 18,000 in-state students. 18,000 undergraduate in-state students * $30,000 discount = $540,000,000 in total discount. Michigan receives $270,000,000 from the state. Who makes up for the remaining $270,000,000? And that’s not even factoring in the fact that Michigan is obligated to meet 100% of in-state financial needs. To put it bluntly, in-state students are draining the university financially.

Current students would benefit as the University’s vast resources will be efficiently allocated to their alternate uses.

Believe it or not, the state benefits because it clearly cannot/is unwilling to afford the cost of funding public universities.

Yep, MI benefits tremendously from UMich, but unlike, say, Cornell (or PSU), MI voters elect UMich’s board, so I don’t see MI giving up the benefits of UMich or UMich going private any time soon.

In a federal system, what residents get varies tremendously by state. MI and VA residents get far more from their flagships than they put in. NYS actually spends almost as much on Cornell as VA does on UVa and MI on UMich, but NYS residents get a small fraction of the seats that MI and VA residents get at their flagships and they are subsidized far less. Unlike at UMich, where OOS students are subsidizing in-state students to a large degree.

I think it’s heavily endowed at around 9". 10" is sort of a magical number.

I don’t think UMich will go private, at least not within the next decade. There are a few road blocks in order to do that. First is the state legislature. Second is the board formation change. Third is eligible property tax. Nevertheless, they may change the ratio between in state and OOS students. This has been happening slowly for a while already. Very soon, it would be at around 50:50.

billscho, I am not assuming this will be a one-sided breakup. It will be a mutual agreement. Like I said above, the state also benefits from it. I think most states are looking to cut costs, and one of them is by reducing spending on education.

@Alexandre, MI already isn’t spending a lot on UMich and is getting an outsized benefit from the school. Major bang for the buck.

The current situation is a great one for MI, so I see little impetus on that side for a change. You think that MI residents would be happy if UMich tuition for them went up to OOS rates (or even Cornell’s in-state rates)? You think that they wouldn’t let their legislators know if they did?

PurpleTitan, while it is clear that the state is getting a great bargain, there are three things to consider:

  1. The number of in-state students will probably decline significantly in the years to come (from 70% in the 1990s to 57% today to probably around 45% in the next 10 years or so. The advantage will still be well on the state's side, but not as glaring.
  2. Even if the state has the advantage, it is still $270 million that it would gladly do without
  3. Most Michigan residents could care less about the University of Michigan. Only a tiny percentage of the residents of the state appreciate the university and see it for the gem that it is.

That being said, I agree that it is highly unlikely that Michigan will go private, and if it does, it will, it won’t be anytime soon.

It is almost running like a private, but it will not be a private in the foreseeable future.

The University of Michigan can’t “go private” without amending the state constitution. The University is established as a state institution by the state constitution, and its governing body, the Board of Regents, are elected state constitutional officers. They have no authority to transform themselves into a private not-for-profit corporation without a change in the state constitution providing for that. Nor can the state legislature change that relationship without a state constitutional amendment, which requires an affirmative vote of the people. Alexandre may be right that most Michigan residents don’t care about the University of Michigan (I’m less convinced of that because for many it’s a source of pride even if they or their kids don’t attend), but I’m not sure they’d readily go along with relinquishing control via constitutional amendment. So I just don’t see that happening anytime soon.

That doesn’t mean the University couldn’t quasi-privatize by accepting lower state subsidies in return for higher in-state tuition. To some extent that’s already been happening for a long time. You can see it most clearly in the professional schools. In the Law School, for example, in-state tuition is now $51K annually while OOS tuition is $54K, a token tuition discount for state residents.

^ Many graduate schools and higher degrees do not distinguish between in state and oos students anyway. Ann Arbor may benefit from it if UMich goes private. It will increase the tax revenue by 100%. It is not going to happen though.

By the way, I’m not convinced it’s just an implicit deal with the state legislature that keeps in-state tuition low relative to OOS tuition. The University’s ultimate governing body is the Board of Regents, not the legislature, and the Regents are elected state officials. I have no doubt the Regents care deeply about the University, but I suspect they also care about their own political constituency, Michigan residents at large. I’m not privy to any discussions that go on behind closed doors between the University administration and individual Regents, but my guess is the political nature of their office would incline most Regents, most of the time, to want to look out for the interests of in-state students, and that would extend to ensuring the University arranges its finances in a way that is beneficial to in-state students. The Regents also have partisan political commitments. The only way you get elected Regent is with the nomination of one of the two major political parties (who often use the general election vote for Regents as a proxy for their respective “base” vote statewide, figuring that almost no one bothers to vote for Regent unless they’re a committed party-line voter). Votes on the Board of Regents don’t often break down along partisan lines, but sometimes they do, for example when the Regents voted 6-2 in 2013 to offer in-state tuition to undocumented state residents, with the 6 Democrats voting yes and the 2 Republicans voting no. Given those partisan allegiances, I would expect that if the political kingmakers in either party tell the Regents of their party to keep in-state undergraduate tuition low relative to OOS tuition, the Regents are going to give weighty consideration to that advice. In fact, you might say that it’s the political heavyweights in either party who are the “real” political constituency of the Regents, because they’re the people who have power to secure or deny the party’s nomination.

@bclintonk It seems you are missing the point. It is not the legislature makes the tuition difference, it is the legislature making it hard to privatize a public university.