KSU endowment sees return increase

Jackie Valley

University Foundation financial director calls earnings a “huge jump” from 2006

Kent State’s endowment earned an 18.1 percent return during the last fiscal year, beating its 16.8 percent benchmark and protecting against a downturn in the economy.

The overall 17.2 percent average return among colleges marks the highest return in nearly a decade, according to an annual report released by the National Association of College and University Business Officers and TIAA-CREF Asset Management. TIAA-CREF is a financial services organization that serves higher education and nonprofit fields.

Mike Strebler, director of financial administration at the University Foundation, said the 18.1 percent endowment return is a “huge jump” from the 2006 fiscal year’s 11.9 percent return.

Even so, Strebler said the important factor related to endowment earnings is the target benchmark, the comparable rate of return among other universities with endowment sizes similar to Kent State.

“We’re always trying to beat our benchmark, which we consistently do,” he said.

Brett Hammond, chief strategist at TIAA-CREF, said the performance of equities in the 2007 fiscal year contributed to the spike in returns.

“At the end of June, endowment equities were up well over 20 percent,” he said.

Domestic equities were up nearly 20 percent – in the high teens.

“That really boosted the endowments this year.”

Hammond said international and domestic equities commonly account for between 47 and 60 percent of an endowment portfolio.

The international equities in Kent State’s endowment – Capital Guardian and Julius Baer International Equity – both surpassed the teens in their returns at 24.7 and 35.2 percent, respectively.

Hammond said the diversification of endowments through alternatives, such as real estate, hedge funds, private equity, venture capital and natural resources also helped spur the high rate of returns.

“Endowments have been increasing their commitments to those areas,” Hammond said. “What they try to do is have their eggs in baskets – some of which may be going up, some of which may be going down.”

Strebler said the foundation’s investment committee will look into diversifying Kent State’s endowment more at its next meeting. Kent State’s current asset allocation is 30 percent bonds and 70 percent stocks.

“Everyone seems to be doing it, so Kent’s looking at it,” he said.

Still, Hammond said universities should not expect to see similar returns in the 2008 fiscal year, especially in light of a possible recession.

“It’s hard to have a 17 percent return,” he said. “They shouldn’t be disappointed if the returns are not 17 percent each year.”

So far, Kent State’s endowment has earned a 1.7 percent return since the beginning of the 2008 fiscal year at the end of June.

While Hammond said the endowment earnings are already seeing a drop this year, he said endowments “don’t just key in one year at a time.”

Instead, he said they manage for the long-run. College endowments earned an average 8.6 percent return for the past 10 years.

“We already know equities have gone from a driver to a drag for endowment growth,” Hammond said. “This year is unlikely to be as good as last.”

Contact administration reporter Jackie Valley

at [email protected].