In response to the U.S. Senate's inquiry into the state of university endowments across the nation, the University of Missouri has prepared and submitted detailed information to the U.S. Senate Committee on Finance. The introductory letter from UM President Gary Forsee and the full document are available below.
February 28, 2008
The Honorable Charles Grassley
Ranking Minority Member
United States Senate
Committee on Finance
203 Hart Senate Office Building
Washington, DC 20510
The Honorable Max Baucus
Chairman
United States Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510
Dear Chairman Baucus and Ranking Member Grassley:
I am writing to you in response to your letter dated January 25, 2008. Your letter was addressed to Chancellor Brady Deaton, Chancellor of our Columbia campus, and forwarded to me. The University of Missouri is a four-campus system comprised of campuses in the Missouri cities of Columbia, Kansas City, Rolla, and St. Louis. We have a proud tradition of service to our state, this nation, and the world dating back to our founding in 1839.
As the oldest public land-grant university west of the Mississippi River, it has long been our mission to give students the best quality education at the lowest possible price. Public institutions like the University of Missouri grapple daily with the question of how to maintain that low price in the face of an uncertain and insecure revenue base. State support of the University of Missouri has been declining. In fiscal year 1999, state appropriations provided 55% of our operating budget support while ten years later this support has shrunk to 39%. To maintain the quality of education and to serve a 19% increase in enrollment, the University has responded by cutting costs, aggressively fundraising, and raising tuition as a last resort.
In fiscal years 2006 and 2007, the University of Missouri identified and implemented $20 million in administrative cost savings and reallocations to the teaching and research missions. In this fiscal year, the University is identifying $9.0 million in efficiencies and reallocations within the academic programs. This process of looking for ways to reduce our expenses and control costs is on-going. We take our stewardship responsibilities seriously.
While the cost of attending a public or private university in this country has grown faster than inflation in recent years, the University of Missouri is committed to trying to keep higher education accessible and affordable. Increases in tuition are offset with increases in institutional financial aid for our neediest students and new endowed scholarships are a part of our capital campaign fund raising. In managing our endowed scholarships, we must constantly strike a balance between support for today’s students as well as for future generations. We are obligated to remember the concept of intergenerational equity.
We welcome your inquiry into the present state of university endowments. We hope this leads to a dialogue that will enable all of us to find new, innovative, and better ways to control our costs and provide our students with an affordable top notch education.
You will find attached our response to your questions. We appreciate the opportunity to describe our mission and accomplishments to you. We are pleased to respond to further questions and stand ready to offer further details.
Very truly yours,
Gary D. Forsee
President
Student headcount and full-time equivalent enrollments for the four campuses of the University of Missouri are displayed in Tables 1and 2 below. Headcount enrollment at the undergraduate level has increased 17% and total headcount enrollment has increased 19% over the ten-year period. Over the same period, full-time equivalent enrollment at the undergraduate level has increased 22% and total full-time equivalent enrollment has increased 23%
Table 3 below shows the tuition and required fees, or sticker price, for undergraduate students at the University of Missouri over the past ten years. The Average Net Cost is the amount on average a student actually pays. This is the difference between the gross tuition and required fees and the amount of grant aid received on average by resident undergraduate students at the University of Missouri. The data shows that average net cost is about 47% of the sticker price. While some students may pay the full sticker price, others may receive enough grant aid to offset all of their tuition and required fees. However, most students are somewhere in between, and on average would pay 47% of the fees assessed.
Table 3 above also shows the average grant aid for Missouri resident undergraduate students for each of the last eight years. The average grant aid for the most recent two years is unavailable at this time. Table 4 below depicts the total undergraduate grant aid awarded by source. Of the $129.4 million in total grant aid awarded in FY 2007, the University of Missouri provided $82.5 million, or 64%, the state provided $14.7 million, or 11%, and the Federal government provided $32.3 million, or 25%.
As a public institution, the University of Missouri is focused on access and affordability for Missouri residents. Missouri residents constitute approximately 83% of the undergraduates. The information reported in Table 5 below focuses on these students only, and shows that 18,820 out of 41,451 (45%) resident degree-seeking undergraduates received some type of grant aid (institutional, federal and/or state) in FY2006 and the average grant aid received was $4,705.
Table 6 below shows the average institutional grant aid awarded to Missouri resident undergraduate students with need and those without need in FY2006. Need can be defined as that portion of a college education for which the student’s family will not be able to pay, based on the family’s adjusted gross income according to FAFSA. Students with financial need are then eligible to receive need-based aid, such as Pell grants and subsidized loans. Students without need often will qualify for other awards, such as merit awards for students with exceptional grades or abilities. Athletic scholarships are another type of award. Institutional grant aid was 48% of the grant aid awarded to students with need and 57% of the grant aid awarded to those without need.
The University of Missouri is committed to meeting the needs of resident undergraduates that have financial need. Table 7 below shows that grant aid covered roughly 80% of tuition and required fees in FY2006 for Missouri resident undergraduates with incomes lower than $40,000.
One of the themes in the University’s Strategic Plan is Access to Quality Learning and Teaching. The Plan states “Create a positive learning environment that enables students to achieve their full academic potential and to cultivate their personal development. The strategic goals are: grow overall enrollment, remain the first choice for Missouri’s students, increase diversity in recruitment and retention of students, develop tuition and financial aid policies that support access and affordability for the citizens of Missouri, lead public universities in the state in student retention and graduation rates, prepare graduates to assume leadership roles in our communities, state and nation, and assess educational outcomes to improve the quality of student learning”. (http://umsystem.edu/ums/about/strategic/01-15-07StrategicPlan.pdf)
The overarching financial aid policy of the four campuses of the University of Missouri System is to help provide access to potential students and to help ensure that enrolled students have the financial support to complete their degree - no matter the student’s family income.
The four financial aid offices of the University of Missouri System encourage all students, both current and prospective, to complete the Free Application for Federal Student Aid (FAFSA) early (prior to April 1) for the new up-coming academic year. These efforts help all students maximize the amount of federal, state and institutional aid they receive. The University promotes early completion of FAFSA and scholarships applications through multiple means of communication in order to reach the broadest number of students possible, e.g., e-mails, mailed letters and post cards, messages on current students’ monthly bills, posted information on university web pages, and placed ads in student newspapers. The University stresses the importance of completing the FAFSA and scholarship applications early so that students and families are able to receive adequate notice of the amount of financial aid offered to them so that they might plan appropriately.
All four University of Missouri System campuses recruit in all areas of the State of Missouri. That includes those areas with the highest concentrations of low income students -- the urban cores of Kansas City and St. Louis as well as the rural areas of the state. The admissions offices and the financial aid offices conduct financial aid presentations at urban high schools. Groups of low income, college bound students are regularly brought to campus for workshops. Recruiters regularly visit both urban and rural high schools to speak with all students interested in attending college.
All the University of Missouri System campuses place special emphasis on assisting dependent students from families with annual incomes of less than $40,000. The amount that the UM System spends, on average, to recruit low income students is approximately $700 per student.
The Board of Curators has the responsibility for determining and deciding when tuition changes are necessary. The full Board votes on tuition changes and other changes to tuition and fee rates. This is an annual decision and is made in conjunction with the budget and planning process of the University. The administration provides the Board with data and information on the various components of the budget that impact any changes in tuition and fees.
The decision to change tuition and fees is made as part of the University of Missouri’s annual budget planning process. This process includes estimating anticipated increases/decreases in revenues and increases/decreases in costs.
On the revenue side, a key component in the decision process to change tuition rates and fees is the projected level of state support. Tuition and state appropriations are the primary sources of revenue for the general operations of the University, comprising about 87% of all general operating revenues in FY 2008. The increase in tuition rates is therefore closely related to the level of state support received by the University. For example, state appropriations anticipated to be received for FY 2008 are almost $11 million, or 3%, lower than they were in FY 2001. When adjusted for inflation, the gap widens to $99 million. In FY2001, state appropriations contributed 56% of the general operation revenues, with gross tuition and fees contributing 36%, for a total of 92% of the operations revenues. In FY 2008, the state appropriations contribution declined to 39%, while the contribution from gross tuition and fees increased to 48% of general operations revenues.
Other projected revenue increases typically result from increases in enrollment and student mix, sales and services of educational activities, and growth in endowment, investment, and miscellaneous income.
Projected cost increases may occur because of increases in salaries, wages and related benefit costs, the increase in the cost of goods and services that the institution must buy, and strategic investments that are important for the University to fulfill its teaching, research and public service missions. Specific examples of non-compensation cost increases include utilities, insurance, information technology, libraries, travel, compliance and training, on-going maintenance and repair, and the cost of opening new buildings and renovated space. The University of Missouri, as a major research university, has inherent costs related to technology and equipment that other institutions may not have.
Recently, strategic investments for the University of Missouri have included additional funding to raise compensation for ranked faculty to the mean of the campus comparator groups by 2011, investment in the next generation fiber optic network to support research and other campus internet demands, and investment in specific academic programs such as a new autism center and research facility for nanotechnology research.
Annually as part of the budget process, the University of Missouri also looks to decrease costs as a result of efficiency measures. In 2006 and 2007, the University identified $20 million in administrative cost reductions and reallocations to the academic and research missions. In 2008, an additional $9 million was reallocated within the academic programs to higher priorities.
In the fall of each school year, at the same time as changes in revenues and expenses are being analyzed, each campus holds discussions with students regarding any new fees being considered and changes in required fees and tuition. The students’ representative groups make recommendations to the Chancellors on each of these fees.
The University administration presents the projected changes in revenues and expenses and possible tuition and fee increases to the Board of Curators in January as an information item. These meetings are open to the public and there is a Student Representative on the Board who is a nonvoting member of the Board. The tuition and fee increases that are proposed are based on considerations of student access and affordability, required investments to sustain quality in the academic programs, and the resources needed to cover mandatory cost increases and prioritized strategic investments. The extent to which cost reductions and efficiencies and other revenue sources such as state support are available is also considered.
At the March/April Board meeting, the administration brings a formal recommendation for changes in tuition to the Board. This recommendation is made in the context of the budgetary needs of the institution and the anticipated available resources. The entire Board votes on the tuition rate schedule that will take effect the following summer term.
Yes, the full Board meets in public and votes on changes to tuition and fees.
Students, parents, and the public are provided opportunities to comment on tuition and fee changes. Before changes to tuition and fees are brought to the Board for approval, each of the campuses solicits input from the student governance organizations. In addition, a student representative sits on the Board to advocate and lobby for the best interests of the student body. The Board meetings are open to the public so students, parents and the public can monitor any discussion or action regarding a change in required fees and tuition.
In addition to loans, family contributions, and work study, endowments play a critical role in assisting students. The University’s endowment fund is almost all restricted in use by the donors. Over one-third of the endowment distributions are restricted for scholarships. In fiscal year 2007, $12.3 million from the endowment was used for scholarships out of a total of $82.5 million spent on undergraduate grant aid. Other uses include endowed chairs, professorships, and fellowships.
The University’s Board of Curators bears the ultimate responsibility for the management and oversight of endowment assets. The Board’s role is to set policy, track progress of the policy, review and select individual investment advisors, and review asset/liability modeling. (http://umsystem.edu/ums/departments/gc/rules/financial/140/011.shtml) The Board generally meets six to seven times per year, as determined by the Board, on all matters pertaining to the University. The Board is required by law to meet at least twice per year.
The University’s endowment investments are managed by the Treasurer, with oversight from the Vice President for Finance and Administration. Each individual endowment created by a donor is invested in one of several endowment investment vehicles. These include the large, main endowment investment pool, as well as several smaller, special-purpose investment pools. Spending from the individual endowments is managed by the respective financial aid offices of each campus, as well as by the specific departments or units that benefit from the endowment.
Endowment investments are largely managed by external investment advisors. The assets are managed in accordance with the University’s investment policy. The Board selects investment asset classes and investment advisors that they determine will best accomplish the long-range goals and needs of the endowment.
The Board of Curators is responsible for setting the University’s endowment payout and investment policies. The Board reviews them regularly. The endowment payout for most of the University’s endowment has been designed with the following factors in mind. The endowment fund must be managed to provide ongoing support of endowed programs in perpetuity. The investment implication: a prudent approach to spending and reinvestment, using a payout formula, is necessary to provide protection against inflation over time and to provide for intergenerational equity.
The payout formula of the main endowment pool is a multi-part formula. It begins with the calculation of 5% of a trailing 12-quarter average of the endowment's total market value. To achieve some uniformity in amounts to distribute from one year to the next and to smooth the impact of dramatic market fluctuations over time, the actual amount available to distribute in any given year will not exceed 106% of the prior year's distribution, or be less than 96% of the prior year's distribution. The 12-quarter average, as well as the cap and floor, results in a smoothing effect on each year’s payout.
Investment policies are specific to each investment pool. For the University’s main endowment pool, the assets are managed to ensure that the endowment fund continually supports the purposes established by the Board in strict conformance with donor stipulations. It is the objective of the University to achieve investment results over time that will i) support the purposes for which the endowment was established, and ii) maintain the purchasing power of the endowment for future generations.
The mission of the University’s endowment is to provide a flow of operating revenues to support the teaching and research missions of the university and to provide financial support for students who might not otherwise be able to attend the university. The University is cognizant of the need to strike a balance between the needs of today’s students as well as students for generations to come.
Donors to the university create endowments with the intention of providing specific support in perpetuity and expect that the corpus of their gift will grow over time in order to maintain buying power. When an individual endowment is set up with the donor, the donor will typically state a purpose for the endowment and thus restrict the use of the payout. Each individual endowment has its own purpose in support of the mission of the university. There are over 4,250 individual endowments within the University that, as a group, comprise the University’s endowment fund. The endowment must be managed to be in strict conformance with the donor’s wishes and to maintain the purchasing power of the endowment pool (and therefore each individual endowment therein) in perpetuity.
Many endowments support scholarships for students. A new endowment set up in fiscal year 2008 will provide scholarships on our St. Louis campus to undergraduate business majors. Among other stipulations, the scholarship is restricted to those with demonstrated financial need as determined by FAFSA. Another example of the restrictions associated with endowed scholarships is a new endowment for our Columbia campus called the Undergraduate Nanotechnology Scholarship. The scholarships will be awarded to engineering students with demonstrated interest in the field of nanotechnology. Nanotechnology is one of a wide spectrum of cutting-edge, 21st century technologies being researched and taught in the Department of Electrical & Computer Engineering on the Columbia campus.
But there are other purposes that attract donors. Donors often give funds to set up or support academic professorships or chairs, or to enhance a specific academic department, or to build or maintain classrooms. Such endowments, while benefiting students indirectly, are also important to maintain the quality of the institution. An example of an endowed chair is the Endowed Chair in Child Health. This was set up in fiscal year 2005, and supports research efforts in autism and neurodevelopmental disorders. The chair is part of the Thompson Center for Autism & Neurodevelopment Disorders. The Center’s mission is to improve the lives of individuals with such disorders by bringing families and professionals together to support innovative research, dynamic teaching, and individualized service interventions (http://thompsoncenter.missouri.edu/). The endowed chair provides an annual revenue stream to support the salary and research of a top professor in this field.
The investment policy for the endowment fund was last reviewed at the January 14, 2008 Board of Curators Finance & Audit Committee meeting. The last amendments to the investment policy were enacted at the January 26, 2007 Board of Curators meeting.
The policy is reviewed on a regular basis. The policy can be reviewed at any time by the Board. It is likely that the next review will be scheduled for sometime during the fourth quarter of 2008. Investment performance of the endowment fund and each of the individual investment advisors is reviewed quarterly.
Graph 1 “University of Missouri System - Endowed Net Assets” exhibits year-by-year growth of Endowed Net Assets from $519.3 million in FY98 to $1,048.5 million in FY07. The stellar growth of the endowment has been due to new gifts received into the endowment. All of the University’s campuses have been engaged in fund-raising capital campaigns. In addition, the performance of the financial markets has driven growth, especially during 2004 to 2007.
Graph 2 “University of Missouri System - Percentage Increase (Decrease) in Endowed Net Assets” exhibits the year-by-year percentage change in the University’s Endowed Net Assets from fiscal year 1998 to fiscal year 2007. This percentage is derived by dividing the dollar change in each year by the beginning of the year total Endowed Net Asset value. The prolonged bear market from mid-2000 to 2002 had an obvious negative effect on the endowed net assets. As stated before, the ongoing capital campaign and world bull markets of 2004 to 2007 have benefited the endowment fund.
Graph 3 “University of Missouri - Increase (Decrease) in Endowed Net Assets” exhibits the year-by-year dollar change in the University’s Endowed Net Assets from fiscal year 1998 to 2007.
Graph 4 “University of Missouri System - Private Gifts for Endowment” exhibits the total gifts to the University’s Endowment year-by-year from fiscal year 1998 to fiscal year 2007. Gift giving can be very erratic. Many factors can influence a donor’s decision to give, including whether the donor perceives that they are doing well enough to give. Often, gifts of stock will trail off during bear markets as donors retrench and wait for stock values to rise. This can be seen in 2000 and 2001. Recent capital campaigns across all four campuses have been instrumental in the increases displayed in 2005 through 2007. Private gifts to the institution, whether endowed or immediately spendable, are crucial to the institution’s success as they enable the University to fund scholarships and important academic programs.
The University’s asset allocation is illustrated below. It consists of traditional asset classes, like equities and fixed income, as well as non-traditional classes, or alternative investments. Included in the alternatives category are absolute return, private equity, and real estate. Over the past two decades, the University has increasingly moved more funds into the alternatives arena, in search of needed higher returns. This has been accomplished by taking funds from public equities and fixed income. The endowment fund’s international investments include $288,841,000 in non-U.S. equities and $194,383,000 in global fixed income. (http://umsystem.edu/ums/departments/fa/treasurer/endowment/aahistorical.shtml)
The University's Endowment Fund includes all gifts, bequests and other funds directed to be used to support a University program in perpetuity. Some donors require such a commitment as a condition of their gift (these donations are referred to as "true endowments"). When a donor specifies that all or some portion of the donor’s gift is to be invested and maintained in perpetuity, it is considered a permanent or true endowment. The donor and the University sign an endowment agreement that serves as the governing document for that individual endowment. True endowments form the core of the University’s endowment.
Also, funds may be assigned to function as endowments by the Board of Curators or by University administration (these funds are referred to as "quasi-endowments"). Examples of activities supported by true and quasi-endowments include:
Quasi-endowments function like endowments, but they are technically not true endowments. Quasi-endowments are funds that the University decides to treat as permanent funds. They are then invested and maintained in perpetuity, similar to a true endowment. Quasi-endowments are also part of the University’s endowment.
There are long-term investments of $593.8 million that are not included in the endowment as reported to NACUBO. All of the $593.8 million is non-endowment funds. This amount represents long-term investments for working capital, self-insurance funds, agency funds, plant funds, and accrued investment income. $474.5 million of the non-endowment funds is for working capital. In order to maintain its AA/Aa2 bond rating, the University is required to keep an amount equal to 120% of the University’s variable debt in liquid government agency securities. Agency funds make up $66.9 million of the non-endowed long-term investments and represent investments administered by the University but held by outside foundations such as the Law School Foundation and the Medical School Foundation. The University has $42.6 million of long-term investments on deposit with trustees for self-insurance and faculty benefit programs. The final $9.8 million is accrued investment income, land and properties, investments in partnerships and other miscellaneous long-term investments.
Investment management fees have averaged 0.48% over the past 10 years. Total fees paid have climbed in recent years due to the long-running bull market of 2002-2007. As the market value increases, the total fees paid increases. Fees have also increased as more alternative investment advisors are added to the portfolio. Alternative investment advisors have higher fee structures than traditional investment advisors.
Fees for consultant services are not included in the table. They amount to less than 0.01%. The University’s staff fees and expenses concerning the endowment are 0.02% and are paid from general operating funds, not from the endowment funds.
We have presented the payout percentage in two ways. Column A shows the percent calculated according to NACUBO methodology (uses previous years ending market value). Column B shows the percent calculated using the previous twelve quarters’ market value (University’s methodology).
The payouts for the last eleven years are shown in the table below:
* The payout amount is divided by the previous year’s ending market value. This is the NACUBO methodology
** The payout amount is divided by the average of the past twelve quarters’ ending market values. Because of the methodology of the University’s payout formula, this percentage calculation is a better representation of the University’s payout rate.
The target payout is the same as the actual payout and is shown in the right-hand column of the previous table. It is a variable target that changes from year to year, is based on the average market value of the trailing twelve quarters, and will never be more than 106% or less than 96% of the prior year payout. This provides for a stable but growing flow of funds from year to year.
Over the last ten years, from FY1999 through FY2008, using the NACUBO methodology (column A of Table10), the average payout has been 4.1% and the median payout was 4.2%. Using the University’s methodology (column B of table 10), the average payout has been 4.8% and the median payout was 4.9%. The payout rate is sufficient to provide the maximum possible payout for today’s students while not compromising the ability of the endowment to provide for future generations. (Also see Question #10d response)
There was not a material variation between actual and targeted.
Seventy-three percent (73%) of the endowment is subject to permanent spending restrictions or limitations set by the original donor. Below is a snapshot of the endowment broken down by type. This table reflects the three categories a gift will fall into if it is invested within the endowment. All true endowments - unitrust, life income funds, and charitable gift annuity funds - are subject to the original donor’s restriction.
The University's Endowment Fund includes all gifts, bequests and other funds directed to be used to support a University program in perpetuity. Some donors require such a commitment as a condition of their gift (these donations are referred to as "true endowments"). Also, funds may be assigned to function as endowments by the Board of Curators or by University administration (these funds are referred to as "quasi-endowments"). Examples of activities supported by true and quasi-endowments include:
Unitrusts, life income funds, and charitable gift funds (“life income funds”) are donor funds that are restricted during the lifetime of the donor. During the donor’s lifetime, the life income funds make payouts to the donor, typically on a quarterly basis. In other words, the life income fund pays the donor income for life. When the donor passes away, the remaining funds pass directly to the University. From that point forward, the use of the funds is governed by other agreements previously set up with the donor. Typically the remainder funds become part of a true endowment. However, it is possible for a donor to stipulate that the remainder funds can be spent in full (and not made part of an endowment).
The information on the percentage restricted for need-based scholarships is unavailable at this time. The University has taken the initiative to encourage donors to establish endowments that would benefit students that have a financial need. Some donors prefer to establish criteria such as merit that do not take need into account.
As an example of how the university supports and encourages greater access and opportunity for students, several years ago (FY 2005), a fund was created to support student access by establishing need-based endowed scholarships for our neediest students. The university allocated a portion of its increased state appropriations (hereafter referred to as ‘state match dollars’) that year to create an exciting new scholarship program.
There were several key components to the program. Dollars given by donors for new need-based scholarships were matched on a roughly one-for-one basis with the state match dollars. For example, if a donor gave $30,000 for a need-based scholarship, it was matched with $30,000 of state match dollars, and an endowment of $60,000 was created. Each need-based scholarship created under this program was required to have language which guaranteed that the scholarship would be reserved for Missouri resident undergraduates in the high need category for financial aid. The high need category follows federal financial aid regulations.
The program was a resounding success. 176 scholarship endowments were created with private donations of $3.9 million and state match dollars of $3.9 million for a total of $7.8 million. This program demonstrated the generosity of individuals and firms for those persons less well-off financially. And since the endowments are managed to exist in perpetuity, they will benefit our neediest students for generations to come.
The information on the portion of endowed scholarships restricted for undergraduate financial aid is unavailable at this time. The top five restrictions on the endowment by category are: Professorships; Scholarships/Fellowships; Research; Teaching and Administrative Awards; and Unrestricted Departmental Use.
27.2% of the endowment is categorized as quasi-endowment. Such quasi-endowments are subject to limitations placed on them due to decisions made by the University. Quasi-endowments function like endowments, but they are technically not true endowments. Quasi-endowments are funds that the University decides to treat as permanent funds. They are then invested and maintained in perpetuity, similar to a true endowment. Quasi-endowments are also part of the University’s endowment. Approximately 50% of the University of Missouri quasi-endowments are dedicated to the support of faculty research, academic programs, and campus beautification. Approximately 7% of the quasi-endowment is used as a backup reserve to the University’s charitable gift annuity program. The remaining 43% consists of smaller quasi-endowments that have been created to help fulfill individual campus needs including scholarships.
The graph below shows the total return for each of the last ten fiscal years. The ten-year annualized return equals 8.9%. The distribution for spending each year plus inflation should approximate the long-term annualized returns over time. Over the ten-year period from 1998-2007, the higher education price index (“HEPI”) had an annualized value of 3.9%. Using the University’s payout methodology, the average payout rate was 4.8% for the same time period. 4.8 + 3.9 = 8.7.
The University’s average annualized rate of return for the same ten year period was 8.9%. When one factors in investment management fees, in this case approximately 0.55%, the entire return has been ‘used up’.
Each fee arrangement is unique for each investment advisor. All fees are negotiated during the advisor’s hiring.
Advisor fees are based on a fee schedule. For example, an advisor will charge 0.750 of 1% for the first $10 million invested. For the next $10 million invested, the advisor will charge 0.500 of 1%. For the remaining funds invested the charge will be 0.350 of 1%.
The University reviews fees for reasonableness during the manager selection process. Manager fees generally follow their published fee schedules. Occasionally, the University is able to negotiate fee discounts.
The fee structure for each investment advisor is reviewed by the Treasurer’s Office and the Vice President for Finance and Administration and approved by the Board of Curators during the hiring of that manager.
Investment manager fees are paid from the endowment fund. The University’s staff fees and expenses concerning the endowment are paid from general operating funds, and not from the endowment funds.
There is no relationship between the endowment size and/or growth and the compensation given to the University President and the Treasurer.
No bonuses are given based on endowment performance.