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

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