University of Michigan endowment dips in fiscal year

University of Michigan experienced a slight 1.3% drop in net endowment assets to $7.691 billion in the fiscal year ended June 30, according to the Ann Arbor-based university's Report of Investments.

The slight decline was due to spending and was “partially offset” by new gifts and transfers into the university's long-term portfolio, according to the annual report. The university's investment office managed an additional $1.678 billion in operating and other funds as of June 30.

Returns of the long-term portfolio, which totaled $7.9 billion as of the fiscal year-end, were one year, -0.54%; three years, 11.54%; five years, 2.48%; and 10 years, 9.61%. Multiyear returns are annualized.

Returns of the long-term portfolio were above those of its customized benchmark in all but the one-year period, when the benchmark returned 1.28%. Over the three-year period, the benchmark returned 10.67%; five years, 2.01%; and 10 years, 7.52%.

Fixed income, with a 14.8% return, was the long-term portfolio's best-performing asset class in the year ended June 30, followed by real estate, 4.1%; private equity, 2.5%; and venture capital, 0.2%. Equities produced the worst return for the year at -9.3%, followed by natural resources, -2.4%, and liquid absolute return, -1.5%.

“While an occasional loss from year to year is to be expected, the small loss last year is disappointing … however, the 10% annualized return over the past 10 years is consistent with the aim of the university's long-term diversified investment strategy to generate a level of return sufficient to provide dependable support for operations, while at the same time (to) protect and grow the corpus in real terms,” according to a statement in the report co-written by Timothy P. Slottow, executive vice president and CFO, and L. Erik Lundberg, chief investment officer.

University of Michigan investment staff increased the long-term portfolio's allocation to illiquid alternative investments in fiscal 2012 to 53.2% of assets, from 50.2% as of June 30, 2011. The allocation to liquid marketable securities dropped to 46.8%, from 49.8%.

The long-term endowment portfolio's specific asset allocation as of June 30 was 20.6% equities, 16.2% absolute return, 16.1% private equity, 12.2% venture capital, 15.2% real estate, 8.4% fixed income, 9.7% natural resources and 1.6% cash.

The June 30, 2011, allocation was 23.6% equities, 15.9% absolute return, 15.9% private equity, 12.8% real estate, 11.5% venture capital, 10% natural resources, 7.8% fixed income and 2.5% cash.