9 No. 5
Managing Emory's endowment for the present and future
What is an endowment?
Asset allocation of Emory's endowment
“I tried to think of issues that the faculty might bring to the investment committee, and it's difficult to find one.”
“We want to spend today and benefit the students and faculty of today, but we don't want to do that at the expense of the next generation.”
100 Semesters: My Adventures as Student, Professor, and University President, and What I Learned Along the Way
William M. Chace, President Emeritus and Professor of English
Academic Exchange: How does the endowment work?
Mike Mandl: For those that hold endowment funds (i.e., schools and units), it’s like one gigantic mutual fund. It’s not in a mutual fund, but it acts like one. That is, every individual endowment fund is invested the same way. On the investment side, it’s managed as if it’s one big endowment, but it gets allocated into thousands of accounts. When it comes to all the endowed professorships or an endowment for a scholarship, all those accounts exist, but the big investment pool just gets allocated to that. Then each endowment gets a certain number of endowment units. Let’s say I give a million dollars and I want it to go for graduate students in English. When the million dollars comes in, it goes into the endowment. The endowment sets up an account for the “Mandl Scholarship in English,” and let’s say the market value at that time for a unit was $100,000, it would get ten endowment units. So now it’s got a million dollars in it. And then what happens is each unit every year gets an amount to spend. So if you’ve got ten units, then you have a spending amount for each unit, and that gets distributed to the endowment, and then you get to spend that.
AE: What of this new record-setting Woodruff gift?
MM: Not every gift is an endowment gift. $240 million of the [Woodruff] gift was to help pay the cost of building a new clinic in a couple of years. So that money is not going into the endowment. It’s going to pay the construction costs. Same with the renovation money for the Woodruff health sciences. And then the president has $12.5 million of strategic plan money from the Woodruff gift. And that also won’t go into the endowment. They’ll spend that over five years. We invest everything that comes in, but it wouldn’t get invested in the endowment. So we have endowment investments, and that’s for things that are held for the long, long term. And then we’ve got another pool of funds for short-term holding. The [Woodruff] money will go into the short-term investments. The $240 million, by the time that comes in—it’s being paid in over five years—we invest it, and there will be a little extra money. We’ll end up spending all the principal.
AE: Is Emory’s investment strategy going to change with predictions of a bull market in 2007?
MM: No. Maybe things get tweaked at the margin, but in general our approach is we have an asset allocation model that says we want to run over the long haul. And that’s so much in U.S. equities, so much in real estate, so much in alternative investments, so much in bonds. We don’t swing that around year-to-year. [The endowment is] fully diversified and would look like virtually any other large endowment in the U.S. It’s got the full range of investments from U.S. equities, international equities, bond funds, real estate funds, hedge funds, alternative investments, oil and gas and natural resources—everything.
AE: What’s the overall investment goal?
MM: There are two simultaneous objectives that we really have to balance. Either one by itself would be at odds with the other one. One is to preserve the purchasing power for the future. And we refer to that as intergenerational equity. We want to spend today and benefit the students and faculty of today, but we don’t want to do that at the expense of the next generation. So all that is just to say that we need to make sure that the dollar we have in endowment today produces the equivalent spending in the future. We have to make sure the endowment grows just to cover inflation and annual spending. That’s one goal. The other goal is to produce growth beyond inflation and current spending. So we just have to find the right balance between the two, and that’s what the discipline of the spending rate does. We make an assumption about inflation, let’s say that’s 4 percent as a long-term assumption. And if you’re spending 4.75, well then you have to have a return of at least 8.75 percent every year just to stay even. So we have those targets. And then to the extent that we can beat that targeted return, the endowment grows beyond just the purchasing power. The primary source of endowment growth beyond inflation must really come in the form of new gifts.