Miami's Endowment Balance At $12 Million Loss For Year

BY JAMES STEINBAUER
Miami University journalism student

Miami University's endowment pools lost 4.1 percent of their value for the year ended June 30, ending up at a negative $12.1 million.

A report from the Board of Trustees Finance and Audit Committee -- presented at today's full board meeting -- shows the dramatic dip in endowment and other investment income, which stood at $11.5 million a year earlier.

The loss of those dollars will be felt by both faculty and students, according to David Creamer, Miami vice president of finance and business services.

“There will be a small number of endowed funds where this diminishes what they will do,” Creamer said in an interview this week. “There won’t be normal distributions occurring from those endowments.”

The loss will affect five major endowments that would have distributed about $193,000 for faculty development and more than $291,000 in scholarships.

Unlike a gift, which can be used all at once or until the money runs out, an endowment allows the university to provide benefits for students in perpetuity.

So when Miami receives money to create an endowment for a scholarship, it never taps in to that money. Instead, it invests it.

The university anticipates that the average rate of return for its investment will be about 8 percent, Creamer said. It will distribute around 5 percent of that and, over time, the 3 percent that is left over causes the endowment to grow even larger.

“The assumption is that over time you have growth from the investment activities that exceed the distributions, plus you have new money coming in,” Creamer said.

When the return on the university’s investments is negative, like it was last year, it doesn’t distribute anything. Once these endowments have accumulated investment earnings again, Creamer said, the distributions will be resumed.

“This is pretty consistent with what you would find at some of the largest institutions,” Creamer said. “What distinguishes us from, say, a Harvard, is that Harvard more actively manages their investment funds.”

Miami’s Foundation investment committee seeks a wide mix when investing endowment funds, turning to stocks and bonds in many different countries, industries, sectors and commodities.

“The strategy is to build a diverse pool and not put all your eggs in one basket,” Creamer said. “Putting all your eggs in one basket can provide huge rewards, but it can also provide huge losses.”

Most of the time, a global strategy will outperform a domestic strategy. This year, in the United States, large cap stocks — stocks in big companies worth more than $5 billion — had a positive return.

However, Creamer said the negative performance of the global economy was the major contributing factor to the investment loss for the year.

The Finance and Audit Committee report blamed lower prices on oil and other commodities for market conditions along with more general declines in public equity and assets. Strong returns in the last quarter of the fiscal year could not repair the damage done in the first eight months, the report said.

While this year's decline was dramatic -- with its $23.6 million swing -- it was not the first time Miami's endowment pools have taken a hit. The value of the account dipped by 22.4 percent in 2008-09 and 3.6 percent in 2011-12. In the last decade, its best performance was in 2007-08, when the balance climbed by 21.6 percent.

This fiscal year could mean a return to gains, Creamer said.

“You may not have supported the new president, but apparently the markets have liked him,” he said. “For whatever reason, the markets are anticipating that Washington will be more business friendly. So stocks have done very well.”

Photo: The value of Miami University's endowment pool dropped 4 percent for the year ended June 30, dipping to negative $12.1 million. -- Contributed photo