Baylor's Investment Return On Endowment Tops U.S. Universities

Jan. 26, 2005

by Lori Scott Fogleman

Baylor University's investment return rate of 25.2 percent on its endowment for fiscal year 2004 outperformed more than 700 U.S. universities, including Harvard, Yale, Duke and Notre Dame, according to information released Jan. 24 by the National Association of College and University Business Officers.

The annual NACUBO Endowment Study (NES), the largest and longest running voluntary survey of higher education institutions and their foundations about their endowment holdings, showed Baylor's market value of endowment assets at $672,341,000 in FY 2004. Baylor's fiscal year ends May 31. At the end of December 2004, the fund stood at $750 million, a high-water mark for the university.

In addition to Baylor's 25.2 percent investment return rate, NACUBO also reported that Baylor's market value of endowment assets increased 20.8 percent, or about $115.6 million, from 2003 to 2004. An endowment's change in market value from one fiscal year to the next, according to NACUBO, includes several factors, such as growth from gifts, reductions due to expenditures and withdrawals, as well as investment returns.

"We feel very fortunate that our returns were extremely strong, and the results provide validation of what was approved by the Board of Regents four years ago," said Jonathan D. Hook, Baylor's chief investment officer. In 2000, Baylor regents decided to bring the investment management function back to campus and take a more aggressive stance on managing the university's endowment.

"With that decision, the Board also allowed my office to more actively manage the fund with the inclusion of new asset classes to add to our diversification," Hook said. "I would also like to thank the members of Baylor's Investment Committee and our consultants with whom I work on a daily basis. This is a tremendous win for Baylor while at the same time being very humbling to have achieved the No. 1 spot this last fiscal year."

Baylor officials were pleased to hear about the university's investment return rate.

"In just a few years, Jon has completely restructured the way Baylor's endowment is managed," said Dr. Reagan M. Ramsower, acting vice president for finance and administration. "His expertise and hard work are bearing fruit and it comes as no surprise that we would have one of the best returns in the nation; but, I was thrilled for both Baylor and Jon that we had the top return."

"I am very pleased that the hard work, sound financial planning and responsible stewardship by Jon and others in the management of Baylor's endowment has resulted in the top investment return rate among U.S. universities," said Baylor President Robert B. Sloan Jr. "Our Board of Regents made a forward-thinking decision four years ago to change our investment management strategies and policies, and that judgment is proving to be a sound one for the university. A thriving endowment will allow Baylor to sustain a strong student scholarship program, provide vital support for academics and student life and realize the other imperatives of our 10-year vision."

A total of 741 institutions from the United States and Canada with $267 billion in endowment holdings took part in the 2004 NES, the largest group in the 33-year history of the study. The NACUBO study showed an average one-year return rate of 15.1 percent for fiscal year 2004. When inflation and yearly endowment spending rates are considered, the five-year investment return rate average is 3.8 percent for institutions participating in the 2004 study. The study used information collected and calculated by TIAA-CREF, a national financial services organization.

A wide range of endowment sizes and investment return rates were reflected among this year's participants, with most endowments holding less than $100 million in total assets.

"Income and capital gains earnings from endowment investments are a critical source of funds for both independent and public institutions," said James E. Morley Jr., NACUBO president. "Institutional expenses continue to increase, while some revenue sources - such as public funds - are decreasing. These conditions, plus the growing need for student financial aid, make endowment income an increasingly vital funding element of most college and university budgets."

"Results of the 2004 NACUBO Endowment Study demonstrate how disciplined stewardship of increasingly complex investments can positively benefit entire campuses both now and for years to come," said Nancy Heller, TIAA-CREF's asset management managing director.

TIAA-CREF, founded in 1918, is a national financial services organization and the leading provider of retirement services in the academic, research, medical and cultural fields.

NACUBO, founded in 1962, is a nonprofit professional organization representing chief administrative and financial officers at more than 2,100 colleges and universities across the country. NACUBO's mission is to promote sound management and financial practices at colleges and universities. More information on NACUBO can be found at www.nacubo.org.

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