University Endowment Stays Strong

As UNC's chief investment officer, handling the school's $1 billion endowment for student scholarships and faculty professorships, a negative-growth year and a topsy-turvy summer stock market have made him a little nervous.

But with fiscal year 2001-02 reports in hand, Yusko can relax.

While the overall market benchmarks dropped 10.4 percent, UNC pulled slightly better than even with a 0.03 percent gain.

"We had a very strong performance compared to the benchmark," Yusko said. "We outperformed the market."

The earnings don't seem significant, but Yusko claimed a victory compared to institutions that lost substantial amounts of money.

For instance, the University of California system lost $145 million of its $5.1 billion endowment on Enron investments when the energy-trading company went bankrupt this year.

Yusko said that if UNC had invested most of its money in equity funds such as stocks, similar to what the UC system did, it would have lost as much as $170 million.

University investors had limited amounts of stock and bonds in Enron and the other two major companies to declare bankruptcy in recent months -- WorldCom and Adelphia.

Investors made up money lost in diminished bond values by buying into the bankrupt companies in the hopes that they will rebound higher after they come out of Chapter 11, Yusko said.

Instead of investing most of the endowment money in the stock market, the University believes in diversifying its funds among many different assets to reduce risk, officials said.

The University's endowment is split into 1,700 different accounts and is directed by more than 150 managers.

"With diversification we always underperform the best but outperform the worst," Yusko said.

This year any endowment that comes out positive or even stable will outperform most funds, said Damon Manetta, a spokesman for the National Association of College and University Business Officers.

Manetta said that nationwide he expects endowments to drop between 1 and 3 percent, although official numbers for 2001-02 are not yet available.

"If there are any increases, they will be so slight that they won't make much of a difference," he said.

According to the fiscal year 2000-01 survey, funds in college endowments fell on average by 3.6 percent.

The size of UNC's endowment that year went from about $1.1 billion to about $1.05 billion -- roughly a 5 percent decrease.

UNC is one of 43 schools that invested more than $1 billion dollars in the 2000-01 fiscal year.

Jud Koss, managing director at Commonfund, which oversees two private funds for UNC, said endowment losses nationwide are reeking havoc on campus projects.

"Shoot-for-the-lights-out returns from past years are now at negative levels," Koss said.

At UNC, officials didn't have trouble allocating 5 percent of the interest used to fund campus improvements and scholarships.

But Koss said, "Most investment committees are experiencing their first bear market in a long time, or the first time ever."

But Yusko said the University's Foundation Investment Fund board of directors anticipated the downturn.

He hopes to look past the recent troubles of the market and pull even with long-term endowment increases.

Over the last five years the fund has increased 9 percent, and over the last 20 years it is up 14 percent.

"We are still plunging forward and continuing to invest," Yusko said.

Manetta, the association analyst, said universities have adapted their investments to reflect the state of the economy and are being optimistic about this fiscal year.

"2003 is off to a choppy start," he said. "But that doesn't mean we can't have a positive year."

The University Editor can be reached udesk@unc.edu.