Growth in market value of endowment
allows growth in endowment spending
Emory had a 35-percent increase in the market value of its endowment for
the fiscal year ended June 30, 1996, according to a National Association
of College and University Business Officers (NACUBO) endowment study released
Feb. 10. Emory's market value increased to $3,013,112,000 on June 30, 1996,
compared to $2,232,188,000 on June 30, 1995.
The phenomenal change in the market value of Emory's endowment, from $250
million in 1982 to $3 billion, has propelled Emory into sixth place nationally
among university endowments, according to the NACUBO study. The funding
that Emory receives from its endowment has grown from $18 million in 1981
to $90 million in 1996.
A significant part of Emory's endowment growth was realized from the holdings
of stock in The Coca-Cola Company. As of June 30, 1996, Emory held approximately
37.2 million shares of Coca-Cola stock, valued at $1.8 billion, making Emory
one of the largest private holders, according to Wayne Coon, associate vice
president for endowment investments. In 1979, Emory received the assets
of the Emily and Ernest Woodruff Fund, valued at $105 million, from the
late Robert and George Woodruff. The gift was made entirely in Coca-Cola
stock, and its value has steadily increased, particularly over the past
12 years.
University endowments are invested for perpetuity as opposed to personal
investors who at some point, such as retirement, will generally spend the
principle over the remainder of their lives. For investment managers who
are responsible for university endowments, there is no end point to their
investment horizon.
Since returns on endowment investments can fluctuate widely from year to
year (and keeping perpetuity in mind), Emory-as is common practice among
universities-sets its annual spending as a percentage of a three-year rolling
average of the endowment market value. This practice was adopted by the
University in 1991 and is designed to have the growth in spending from the
endowment track, over time, the market value of the endowment.
The Board of Trustees has set a general target of having endowment spending
be no greater than 5 percent of a three-year rolling average. In 1992 the
University established a matching program for capital projects to be funded
from the unrestricted endowment equal to .5 percent of the three-year rolling
average. Budgeted spending in recent years has been set at 4 percent to
4.4 percent for current operations and .5 percent for the matching program,
producing budgeted spending from 4.5 percent to 4.9 percent of the three-year
rolling average. In fiscal year 1996, budgeted spending for current operations
was set at 4.38 percent and for matching at .5 percent, for a total of 4.88
percent.
Growth in budgeted spending from the endowment for the 10 years from 1986-96
averaged 8.56 percent. With the growth in market value that the University
realized in fiscal years 1995 and 1996, it is expected that the University
will be able to realize above average growth in endowment spending in future
years as the strong growth in market value flows into the three-year average
computation.
Emory's $3-billion endowment provided $90 million in revenue for spending
in fiscal 1996. Of that, $71 million was spent for current operations, $11
million was used to fund interest and principal on debt, and $8 million
was set aside for the facilities matching program. Emory's operating revenue
for fiscal year 1996 totaled $1.16 billion. Endowment spending accounted
for $90 million of this total with endowment spending accounting for 7.76
percent of total revenue for the year.
-Jan Gleason