Michigan Endowment Returns 10.7% | Chief Investment Officer

The investment portfolio of the University of Michigan’s endowment returned 10.7% for the fiscal year that ended June 30, raising its total asset value by $1 billion to $11.9 billion, and surpassing the 8.3% median return for universities as measured by Cambridge Associates.

The endowment’s 20-year annualized return is 9.6%, which the university said ranks it in the top 10% for long-term investment performance among university endowments.

“The positive performance of the long-term portfolio compared to the median college and university endowment suggests that the investment office has added an additional $3.1 billion of value since it was established in fiscal year 2000,” said CIO Erik Lundberg, according to the university’s office of public affairs.

To illustrate the $3.1 billion figure, Lundberg said a $100 investment 20 years ago would have returned $350 in the average university endowment, but the same investment in Michigan’s endowment would have returned $600.

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Lundberg told the University of Michigan’s board of regents at its Oct. 18 meeting that the 2018 investment performance was enough to sustain and grow the endowment in real terms, net of spending. Endowment distributions totaled $346 million for the year, up from $325 million in 2017. The endowment has distributed nearly $4.5 billion over the past 20 years.

The university’s endowment is a collection of more than 11,000 separate endowment funds that provide support for specific purposes such as scholarships, educational programs, research, and professorships.

As of the end of August, the university’s long-term portfolio’s asset allocation was 21.8% in absolute return, 21.4% in equities, 15% in private equity, 15% in venture capital, 9.4% in real estate, 9.4% in natural resources, 4.9% in fixed income, and 3.1% in cash.

The board of regents also approved a new model portfolio for the university’s long-term portfolio. The model asset allocation portfolio for the coming fiscal year is for 28% in equities, 18% in absolute return, 12% in fixed income, 12% in private equity, 10% in venture capital, 10% in real estate, 8% in natural resources, and 2% in cash.

The recommendation for the model portfolio was made by accounting firm PricewaterhouseCoopers after an external review of the university’s investment functions.

“By putting this item on our agenda and approving the portfolio on an ongoing basis, the board of regents will keep current on the risks associated with the investment portfolio and further mitigate risks associated with noncompliance with university policy,” Regent Andrew Richner said at the meeting.

According to the university, Michigan’s endowment is the ninth-largest among US universities, and third-largest among public universities. However, on a per-student basis, the university’s endowment is ranked 84th.

Tags: Cambridge Associates, Endowments, Erik Lundberg, Returns, University of Michigan

Brazil’s largest pension fund has decided not to sell any of its stake in iron ore miner Vale, until at least next year, after an accounting change made the Vale holding more valuable.

At a conference in Rio de Janeiro, Previ’s chief executive, Jose Mauricio Coelho, said the $50 billion fund has plans to cut of its some Vale holdings in the medium term, but did not specify when exactly that is.

Following Coelho’s decision, the miner’s shares went up 3.1%, to $15.77. Shares have climbed 80% in the past year. The pension fund is one of its largest shareholders.

Previ, which manages retirement money for Banco de Brasil employees, recently changed its accounting practices for Vale shares, and now values it at the average market price of the past 90 days. The old rules would only let the fund adjust the prices once a year. Following bookkeeping changes, the fund saw a surplus of 2.3 billion reals ($624 million) in September, negating a deficit from earlier in the year, Reuters reports.

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Previ retains Vale shares through the holding company Litel Participações. Other pension funds that are Litel shareholders include Petros, Funcef, and Fundação Cesp.

At the conference, Marcus Moreira de Almeida, the fund’s chief investment officer, said that Litel shareholders were discussing how exactly Litel would distribute the shares across the funds. No shares will be sold until after the distribution takes place, as it is the most tax beneficial way to do so.

Tags: Brazil, Pension, Previ, Vale SA