The unofficial online home for fans of the University of Cincinnati Bearcats. Part of Collegiate Sports Nation (CSN).

(07-31-2020 12:00 PM)Nabeel Wrote:  

(07-30-2020 01:28 PM)Captain Bearcat Wrote:  

(07-30-2020 12:46 PM)Cataclysmo Wrote:  So I have a dumb question. The idea of an endowment is to provide long-term stability and a resovoir for future commitments and the prolonged success of a University, correct? And we also hear about how endowments help stabilize universities through economic fluctuations and thereby provide a relative stability in the short term. As far as I understand it (I don't, at all), endowments are somewhat of an abstract concept that ensures Universities utilize and maintain commitments from donors.

So my dumb question is--how much does UC's recent push for the billion-dollar endowment (now up to 1.5b) factor in to the current Covid predicament? BearcatMan has talked about how schools with larger endowments are, of course, better positioned to absorb the financial blows that will follow, but how, specifically, does the endowment that we have help?

I ask because there's growing concern amongst students about UC's handling of tuition and cost of attendance fees for this upcoming semester, as we talked about. I wouldn't expect UC to just drop tuition unilaterally and then cover the difference with their endowment (which would be tremendously expensive in it's own regard), but I'm confused as to what the point of an endowment is if not to help 1. Faculty maintain their salaries/positions and 2. Help students receive a fair and equitable education relative to costs.

Here's a simple example: Let's say that UC gets an average of $100 million in donations from alumni each year. What can they do with it?

Option 1: spend $100 million this year
Option 2: invest it and spend $4 million every year forever (average returns on endowments are 4%)

If you do option 2 for 25 years, you end up with $100 million every year in interest. Of course, in real life there's inflation and growth in donations, so it all ends up evening out in terms of real economic value.

There's two big advantages to choosing the endowment route:
1) Long-term budgetary certainty. Donations have big year-to-year swings. But investments in faculty (which is by far any university's biggest expense) are long-term and can't be reversed if donations are too low (like 2009 or 2020). If you spend donations as they come in, then during a recession you have to lower scholarship funds (the 2nd biggest expense) or lay off most of your secretaries and academic advisors (the 3rd biggest expense) and/or cut research to the bone and endanger long-term research projects.
2) Short-term budgetary discipline. If you have a big donation year, the administrators who are "up or out" types might waste it. I've seen this happen even with professors - a professor/center director at my last school took over the center's account which had several hundred thousand dollars in it that had been donated, and in just a few years he spent half of it on data he probably didn't need and the other half on lunches and conference travel, then he took another job.

The point of an endowment is to never touch the principle. If you're allowed to draw down the endowment for need-based scholarships during a depression, then you're also allowed to use it for pretty much anything the dean/president in charge of that particular endowment wants. That defeats the whole point of using the endowment to enforce budgetary discipline.

I've never actually worked at an endowment, but that's my understanding of it. Anyone else want to chip in?

Been lurking on this board for years - first time posting. Random question - is the 4% number you used based on UC's actual average return the past few years or just a guestimate?

If UC is really only doing 4%, that's terrible, especially given the size of the endowment. Over the past 10 years, colleges with large endowments (over $1bn) have returned 9.0% on average (target return is 7.2%). You want to fix the athletics budget (or many other things) - that's the easiest way to do it!

Improving from 4% to the average return of a billion dollar endowment would be nearly $75mm in extra returns annually.

https://www.nacubo.org/Press-Releases/20...rn-in-FY19

4% is an "expected value return" for an endowment fund, and the general industry standard, at least in Ohio. It leaves quite a bit of wiggle room to ensure budgets can be covered while also allowing for extra distributed income should the fund perform better (and it normally does). I'm not sure about UC's actual returns, but I'd assume they're closer to 7-7.5%...you've got to remember, endowed funds are normally placed in EXTREMELY conservative investments, as they absolutely cannot lose money based on their purpose. If you see a low year, the positive return from expected at 4% any previous year can be floated to cover, but most endowments have a point of no return that money cannot be touched regardless of purpose to ensure the viability of the fund in perpetuity. This is due on large part to many misappropriation issues that occured in the 90's across the country by individuals (mainly faculty and administrators) who had no business handling money in an operational capacity and blew threw fad more than they should've.

(07-31-2020 12:11 PM)Bruce Monnin Wrote:  

(07-31-2020 10:46 AM)Bearcatbdub Wrote:  Athletics is probably a big Draw factor for flagship state universities like OSU and Bama, but probably way way way down the list for the Mac schools just as BCM has stated.

I’d like to think that UC gets a little more draw from it, but I dunno. I came to UC for the pharmacy school. I considered OSU because of the Buckeyes. I only became a fan of UC athletics because I went there. The bball team was an added bonus for campus life and fball was nearly non existent at the time. Definitely did not go to UC because of their athletics.

I can't find any hard facts, just local observations.

I live almost 100 miles due north of Cincinnati. In 1984, almost 10% of my graduating class went to UC (almost all in engineering), but the years before and after were pretty slim. I did not even know UC had a basketball for football team at that time.

In the early 1990's, there was an uptick in area students going to UC, with the increase mostly in non-technology majors (business, etc). At the time people up here all knew about Bob Huggins and the UC basketball team. Few still knew UC had football.

When the football team hit big under Kelly (and remember sports coverage kept growing on cable TV as time went on), suddenly everyone knew about UC football (though most still thought about Huggins when they thought of UC basketball). There was a HUGE increase of students from up this way who started attending UC at this time.

Just my observation, but 100 miles from Cincinnati, UC's ability to be seen and considered for local students has been directly tied to athletics.

Oh yeah. I was living in Columbus during the Kelly years. When I first moved there in 2001 I had people telling me they had never met anyone who went to UC. Starting around 2007 or 2008, I started seeing UC flags around town and a few of my coworkers kids enrolled here. When they visited campus they all remarked to me how they had never been and how it was some sort of hidden gem. I definitely believe football helped turn it around for us and get some people here that otherwise would not have given UC two thoughts before.

Having football and basketball playing at a high level is advertisement for the university from August-March.

(07-31-2020 12:30 PM)CliftonAve Wrote:  

(07-31-2020 12:11 PM)Bruce Monnin Wrote:  

(07-31-2020 10:46 AM)Bearcatbdub Wrote:  Athletics is probably a big Draw factor for flagship state universities like OSU and Bama, but probably way way way down the list for the Mac schools just as BCM has stated.

I’d like to think that UC gets a little more draw from it, but I dunno. I came to UC for the pharmacy school. I considered OSU because of the Buckeyes. I only became a fan of UC athletics because I went there. The bball team was an added bonus for campus life and fball was nearly non existent at the time. Definitely did not go to UC because of their athletics.

I can't find any hard facts, just local observations.

I live almost 100 miles due north of Cincinnati. In 1984, almost 10% of my graduating class went to UC (almost all in engineering), but the years before and after were pretty slim. I did not even know UC had a basketball for football team at that time.

In the early 1990's, there was an uptick in area students going to UC, with the increase mostly in non-technology majors (business, etc). At the time people up here all knew about Bob Huggins and the UC basketball team. Few still knew UC had football.

When the football team hit big under Kelly (and remember sports coverage kept growing on cable TV as time went on), suddenly everyone knew about UC football (though most still thought about Huggins when they thought of UC basketball). There was a HUGE increase of students from up this way who started attending UC at this time.

Just my observation, but 100 miles from Cincinnati, UC's ability to be seen and considered for local students has been directly tied to athletics.

Oh yeah. I was living in Columbus during the Kelly years. When I first moved there in 2001 I had people telling me they had never met anyone who went to UC. Starting around 2007 or 2008, I started seeing UC flags around town and a few of my coworkers kids enrolled here. When they visited campus they all remarked to me how they had never been and how it was some sort of hidden gem. I definitely believe football helped turn it around for us and get some people here that otherwise would not have given UC two thoughts before.

Having football and basketball playing at a high level is advertisement for the university from August-March.

For sure...but I would also argue that there is a "ceiling" for that. Cincinnati's is extremely high, basically there are only about 30 schools who I would argue have the potential to permeate the national sports landscape more than Cincinnati has over the last decade. The ceiling for tertiary institutions in a state (MAC schools in Ohio for instance) is extremely low...hell, some likely won't even be the top dog in their own areas, and likely wont garner any attention outside of their state. For example, the Fleck years had an almost indistinguishable impact on WMU's enrollment for instance, as they saw a 1% increase in enrollment for the cycle after their football season and enrollment has declined since then, even with their OOS Scholarship program becoming far more robust.

(07-31-2020 12:16 PM)BearcatMan Wrote:  

(07-31-2020 12:00 PM)Nabeel Wrote:  

(07-30-2020 01:28 PM)Captain Bearcat Wrote:  

(07-30-2020 12:46 PM)Cataclysmo Wrote:  So I have a dumb question. The idea of an endowment is to provide long-term stability and a resovoir for future commitments and the prolonged success of a University, correct? And we also hear about how endowments help stabilize universities through economic fluctuations and thereby provide a relative stability in the short term. As far as I understand it (I don't, at all), endowments are somewhat of an abstract concept that ensures Universities utilize and maintain commitments from donors.

So my dumb question is--how much does UC's recent push for the billion-dollar endowment (now up to 1.5b) factor in to the current Covid predicament? BearcatMan has talked about how schools with larger endowments are, of course, better positioned to absorb the financial blows that will follow, but how, specifically, does the endowment that we have help?

I ask because there's growing concern amongst students about UC's handling of tuition and cost of attendance fees for this upcoming semester, as we talked about. I wouldn't expect UC to just drop tuition unilaterally and then cover the difference with their endowment (which would be tremendously expensive in it's own regard), but I'm confused as to what the point of an endowment is if not to help 1. Faculty maintain their salaries/positions and 2. Help students receive a fair and equitable education relative to costs.

Here's a simple example: Let's say that UC gets an average of $100 million in donations from alumni each year. What can they do with it?

Option 1: spend $100 million this year
Option 2: invest it and spend $4 million every year forever (average returns on endowments are 4%)

If you do option 2 for 25 years, you end up with $100 million every year in interest. Of course, in real life there's inflation and growth in donations, so it all ends up evening out in terms of real economic value.

There's two big advantages to choosing the endowment route:
1) Long-term budgetary certainty. Donations have big year-to-year swings. But investments in faculty (which is by far any university's biggest expense) are long-term and can't be reversed if donations are too low (like 2009 or 2020). If you spend donations as they come in, then during a recession you have to lower scholarship funds (the 2nd biggest expense) or lay off most of your secretaries and academic advisors (the 3rd biggest expense) and/or cut research to the bone and endanger long-term research projects.
2) Short-term budgetary discipline. If you have a big donation year, the administrators who are "up or out" types might waste it. I've seen this happen even with professors - a professor/center director at my last school took over the center's account which had several hundred thousand dollars in it that had been donated, and in just a few years he spent half of it on data he probably didn't need and the other half on lunches and conference travel, then he took another job.

The point of an endowment is to never touch the principle. If you're allowed to draw down the endowment for need-based scholarships during a depression, then you're also allowed to use it for pretty much anything the dean/president in charge of that particular endowment wants. That defeats the whole point of using the endowment to enforce budgetary discipline.

I've never actually worked at an endowment, but that's my understanding of it. Anyone else want to chip in?

Been lurking on this board for years - first time posting. Random question - is the 4% number you used based on UC's actual average return the past few years or just a guestimate?

If UC is really only doing 4%, that's terrible, especially given the size of the endowment. Over the past 10 years, colleges with large endowments (over $1bn) have returned 9.0% on average (target return is 7.2%). You want to fix the athletics budget (or many other things) - that's the easiest way to do it!

Improving from 4% to the average return of a billion dollar endowment would be nearly $75mm in extra returns annually.

https://www.nacubo.org/Press-Releases/20...rn-in-FY19

4% is an "expected value return" for an endowment fund, and the general industry standard, at least in Ohio. It leaves quite a bit of wiggle room to ensure budgets can be covered while also allowing for extra distributed income should the fund perform better (and it normally does). I'm not sure about UC's actual returns, but I'd assume they're closer to 7-7.5%...you've got to remember, endowed funds are normally placed in EXTREMELY conservative investments, as they absolutely cannot lose money based on their purpose. If you see a low year, the positive return from expected at 4% any previous year can be floated to cover, but most endowments have a point of no return that money cannot be touched regardless of purpose to ensure the viability of the fund in perpetuity. This is due on large part to many misappropriation issues that occured in the 90's across the country by individuals (mainly faculty and administrators) who had no business handling money in an operational capacity and blew threw fad more than they should've.

I think I get what you're saying here, although I think we may be speaking past each other on one key point. From what I've always heard and seen, university endowments target 7-8% nominal rates of return (basically 5% real return + inflation). If you're saying that in Ohio, we're more conservative and are targeting a 4% real return (i.e. excluding inflation) which would imply a 6-7% nominal return, I'd think that's below par but reasonable. If you're saying Ohio based endowments are targeting a nominal return of 4%, my response would be to fire everyone with any responsibility for these funds.

Granted my familiarity is more with the expectations of large university funds (Ivys, Stanford, UT, etc.), but UC's endowment is now in the top 75 in the world. The largest funds have been getting outsized returns because they are able to tap into super high return illiquid investments that smaller funds can't access. If UC isn't taking full advantage here, we are doing the State and taxpayers a material disservice. While smaller endowments and pensions probably use some variation of the 60/40 (equity/bond) index model, the best performing large endowments have really embraced alternative investments (e.g. VC/PE) to supercharge returns over a long time horizon while still managing risk.

For comparison, if UC was averaging a 7% return over the past decade, we're talking about a loss of $200-300mm over just the past ten years compared to peer institutions. To put this in sports terms, that is literally the annual financial difference between being in the ACC vs being in the AAC. I get that this is Ohio and we're conservative, but it doesn't mean we need to be stupid just because that's tradition. If those data points are true, then the endowment needs to do much, much better.

(07-31-2020 01:07 PM)BearcatMan Wrote:  

(07-31-2020 12:30 PM)CliftonAve Wrote:  

(07-31-2020 12:11 PM)Bruce Monnin Wrote:  

(07-31-2020 10:46 AM)Bearcatbdub Wrote:  Athletics is probably a big Draw factor for flagship state universities like OSU and Bama, but probably way way way down the list for the Mac schools just as BCM has stated.

I’d like to think that UC gets a little more draw from it, but I dunno. I came to UC for the pharmacy school. I considered OSU because of the Buckeyes. I only became a fan of UC athletics because I went there. The bball team was an added bonus for campus life and fball was nearly non existent at the time. Definitely did not go to UC because of their athletics.

I can't find any hard facts, just local observations.

I live almost 100 miles due north of Cincinnati. In 1984, almost 10% of my graduating class went to UC (almost all in engineering), but the years before and after were pretty slim. I did not even know UC had a basketball for football team at that time.

In the early 1990's, there was an uptick in area students going to UC, with the increase mostly in non-technology majors (business, etc). At the time people up here all knew about Bob Huggins and the UC basketball team. Few still knew UC had football.

When the football team hit big under Kelly (and remember sports coverage kept growing on cable TV as time went on), suddenly everyone knew about UC football (though most still thought about Huggins when they thought of UC basketball). There was a HUGE increase of students from up this way who started attending UC at this time.

Just my observation, but 100 miles from Cincinnati, UC's ability to be seen and considered for local students has been directly tied to athletics.

Oh yeah. I was living in Columbus during the Kelly years. When I first moved there in 2001 I had people telling me they had never met anyone who went to UC. Starting around 2007 or 2008, I started seeing UC flags around town and a few of my coworkers kids enrolled here. When they visited campus they all remarked to me how they had never been and how it was some sort of hidden gem. I definitely believe football helped turn it around for us and get some people here that otherwise would not have given UC two thoughts before.

Having football and basketball playing at a high level is advertisement for the university from August-March.

For sure...but I would also argue that there is a "ceiling" for that. Cincinnati's is extremely high, basically there are only about 30 schools who I would argue have the potential to permeate the national sports landscape more than Cincinnati has over the last decade. The ceiling for tertiary institutions in a state (MAC schools in Ohio for instance) is extremely low...hell, some likely won't even be the top dog in their own areas, and likely wont garner any attention outside of their state. For example, the Fleck years had an almost indistinguishable impact on WMU's enrollment for instance, as they saw a 1% increase in enrollment for the cycle after their football season and enrollment has declined since then, even with their OOS Scholarship program becoming far more robust.

Excellent analysis, and WMU is a good example.

While I think the discussion here suggests it's nearly impossible to quantify the impact of successful football/basketball on enrollment and private giving I do believe when it goes well at UC, the institution has so many other bona fides in terms of the campus, national research reputation, ranked academic programs, billion dollar endowment, and location in the heart of a dynamic major league city; that the whole becomes greater than the sum of the parts. With no disrespect to WMU, at the end of a lightly attended MAC championship or bowl win, it's still just a regional state university in a smaller city.

Years ago I spoke with a fundraising consultant who had been in a leadership role at UNC for many years. The icebreaker question when the meeting began was, "How much lift did UNC get in private giving this year from their basketball national championship?" His answer was very little. He then shared, "that's a good thing because you can't count on a national championship every year to drive private support."

I will only add, UC has much unfinished work in building the brand. As an example, we often bike up toward Yellow Springs and stop for lunch @ Young's Dairy, a central OH landmark in some ways. They have a small gift shop and it's well supplied with OSU gear. Seventy miles from our campus there isn't anything UC in there except me in my polo shirt. I get that OSU is the 800 pound gorilla and UC is relatively new to the scene in terms of great football. But with our enrollment now pushing 45,000, we have to continue working to build visibility outside of I-275.

(07-31-2020 01:16 PM)Nabeel Wrote:  

(07-31-2020 12:16 PM)BearcatMan Wrote:  

(07-31-2020 12:00 PM)Nabeel Wrote:  

(07-30-2020 01:28 PM)Captain Bearcat Wrote:  

(07-30-2020 12:46 PM)Cataclysmo Wrote:  So I have a dumb question. The idea of an endowment is to provide long-term stability and a resovoir for future commitments and the prolonged success of a University, correct? And we also hear about how endowments help stabilize universities through economic fluctuations and thereby provide a relative stability in the short term. As far as I understand it (I don't, at all), endowments are somewhat of an abstract concept that ensures Universities utilize and maintain commitments from donors.

So my dumb question is--how much does UC's recent push for the billion-dollar endowment (now up to 1.5b) factor in to the current Covid predicament? BearcatMan has talked about how schools with larger endowments are, of course, better positioned to absorb the financial blows that will follow, but how, specifically, does the endowment that we have help?

I ask because there's growing concern amongst students about UC's handling of tuition and cost of attendance fees for this upcoming semester, as we talked about. I wouldn't expect UC to just drop tuition unilaterally and then cover the difference with their endowment (which would be tremendously expensive in it's own regard), but I'm confused as to what the point of an endowment is if not to help 1. Faculty maintain their salaries/positions and 2. Help students receive a fair and equitable education relative to costs.

Here's a simple example: Let's say that UC gets an average of $100 million in donations from alumni each year. What can they do with it?

Option 1: spend $100 million this year
Option 2: invest it and spend $4 million every year forever (average returns on endowments are 4%)

If you do option 2 for 25 years, you end up with $100 million every year in interest. Of course, in real life there's inflation and growth in donations, so it all ends up evening out in terms of real economic value.

There's two big advantages to choosing the endowment route:
1) Long-term budgetary certainty. Donations have big year-to-year swings. But investments in faculty (which is by far any university's biggest expense) are long-term and can't be reversed if donations are too low (like 2009 or 2020). If you spend donations as they come in, then during a recession you have to lower scholarship funds (the 2nd biggest expense) or lay off most of your secretaries and academic advisors (the 3rd biggest expense) and/or cut research to the bone and endanger long-term research projects.
2) Short-term budgetary discipline. If you have a big donation year, the administrators who are "up or out" types might waste it. I've seen this happen even with professors - a professor/center director at my last school took over the center's account which had several hundred thousand dollars in it that had been donated, and in just a few years he spent half of it on data he probably didn't need and the other half on lunches and conference travel, then he took another job.

The point of an endowment is to never touch the principle. If you're allowed to draw down the endowment for need-based scholarships during a depression, then you're also allowed to use it for pretty much anything the dean/president in charge of that particular endowment wants. That defeats the whole point of using the endowment to enforce budgetary discipline.

I've never actually worked at an endowment, but that's my understanding of it. Anyone else want to chip in?

Been lurking on this board for years - first time posting. Random question - is the 4% number you used based on UC's actual average return the past few years or just a guestimate?

If UC is really only doing 4%, that's terrible, especially given the size of the endowment. Over the past 10 years, colleges with large endowments (over $1bn) have returned 9.0% on average (target return is 7.2%). You want to fix the athletics budget (or many other things) - that's the easiest way to do it!

Improving from 4% to the average return of a billion dollar endowment would be nearly $75mm in extra returns annually.

https://www.nacubo.org/Press-Releases/20...rn-in-FY19

4% is an "expected value return" for an endowment fund, and the general industry standard, at least in Ohio. It leaves quite a bit of wiggle room to ensure budgets can be covered while also allowing for extra distributed income should the fund perform better (and it normally does). I'm not sure about UC's actual returns, but I'd assume they're closer to 7-7.5%...you've got to remember, endowed funds are normally placed in EXTREMELY conservative investments, as they absolutely cannot lose money based on their purpose. If you see a low year, the positive return from expected at 4% any previous year can be floated to cover, but most endowments have a point of no return that money cannot be touched regardless of purpose to ensure the viability of the fund in perpetuity. This is due on large part to many misappropriation issues that occured in the 90's across the country by individuals (mainly faculty and administrators) who had no business handling money in an operational capacity and blew threw fad more than they should've.

I think I get what you're saying here, although I think we may be speaking past each other on one key point. From what I've always heard and seen, university endowments target 7-8% nominal rates of return (basically 5% real return + inflation). If you're saying that in Ohio, we're more conservative and are targeting a 4% real return (i.e. excluding inflation) which would imply a 6-7% nominal return, I'd think that's below par but reasonable. If you're saying Ohio based endowments are targeting a nominal return of 4%, my response would be to fire everyone with any responsibility for these funds.

Granted my familiarity is more with the expectations of large university funds (Ivys, Stanford, UT, etc.), but UC's endowment is now in the top 75 in the world. The largest funds have been getting outsized returns because they are able to tap into super high return illiquid investments that smaller funds can't access. If UC isn't taking full advantage here, we are doing the State and taxpayers a material disservice. While smaller endowments and pensions probably use some variation of the 60/40 (equity/bond) index model, the best performing large endowments have really embraced alternative investments (e.g. VC/PE) to supercharge returns over a long time horizon while still managing risk.

For comparison, if UC was averaging a 7% return over the past decade, we're talking about a loss of $200-300mm over just the past ten years compared to peer institutions. To put this in sports terms, that is literally the annual financial difference between being in the ACC vs being in the AAC. I get that this is Ohio and we're conservative, but it doesn't mean we need to be stupid just because that's tradition. If those data points are true, then the endowment needs to do much, much better.

I totally agree any investment advisor getting 4% should be paid nothing but unemployment. Long term investments over time should be at 8%. On $1.5b that is $60 million a year. I can reference of 70-30 mutual funds that have done that over a 10 year period. Someone needs to ask the board members if they personally would accept 4% on their portfolio.

^^^^


Thanks BearcatMan and Nabeel for some great information and insight. I'll sit back, listen some more, and keep my layman's trap shut.

(07-31-2020 11:36 AM)Major ----de Coverley Wrote:  

(07-31-2020 11:12 AM)BearcatMan Wrote:  

(07-31-2020 10:14 AM)Cataclysmo Wrote:  Yeah it's easy for me to say that athletics has a clear and tangible benefit to the broader University but the scientist in me would love to have more comprehensive analyses to throw some actual figures at people when the debate arises. Especially nowadays with Covid and some of the local professors growing restless...

You have no idea man...I feel like most of my days have been spent working with some of our more...seasoned...faculty learn how to teach differently than they have been for the past 20-30 years.

Ha, my brother is a department chair at a southern University. He says getting his faculty to become facile in the virtual classroom model is like herding arthritic dinosaurs.

(07-31-2020 01:16 PM)Nabeel Wrote:  

(07-31-2020 12:16 PM)BearcatMan Wrote:  

(07-31-2020 12:00 PM)Nabeel Wrote:  

(07-30-2020 01:28 PM)Captain Bearcat Wrote:  

(07-30-2020 12:46 PM)Cataclysmo Wrote:  So I have a dumb question. The idea of an endowment is to provide long-term stability and a resovoir for future commitments and the prolonged success of a University, correct? And we also hear about how endowments help stabilize universities through economic fluctuations and thereby provide a relative stability in the short term. As far as I understand it (I don't, at all), endowments are somewhat of an abstract concept that ensures Universities utilize and maintain commitments from donors.

So my dumb question is--how much does UC's recent push for the billion-dollar endowment (now up to 1.5b) factor in to the current Covid predicament? BearcatMan has talked about how schools with larger endowments are, of course, better positioned to absorb the financial blows that will follow, but how, specifically, does the endowment that we have help?

I ask because there's growing concern amongst students about UC's handling of tuition and cost of attendance fees for this upcoming semester, as we talked about. I wouldn't expect UC to just drop tuition unilaterally and then cover the difference with their endowment (which would be tremendously expensive in it's own regard), but I'm confused as to what the point of an endowment is if not to help 1. Faculty maintain their salaries/positions and 2. Help students receive a fair and equitable education relative to costs.

Here's a simple example: Let's say that UC gets an average of $100 million in donations from alumni each year. What can they do with it?

Option 1: spend $100 million this year
Option 2: invest it and spend $4 million every year forever (average returns on endowments are 4%)

If you do option 2 for 25 years, you end up with $100 million every year in interest. Of course, in real life there's inflation and growth in donations, so it all ends up evening out in terms of real economic value.

There's two big advantages to choosing the endowment route:
1) Long-term budgetary certainty. Donations have big year-to-year swings. But investments in faculty (which is by far any university's biggest expense) are long-term and can't be reversed if donations are too low (like 2009 or 2020). If you spend donations as they come in, then during a recession you have to lower scholarship funds (the 2nd biggest expense) or lay off most of your secretaries and academic advisors (the 3rd biggest expense) and/or cut research to the bone and endanger long-term research projects.
2) Short-term budgetary discipline. If you have a big donation year, the administrators who are "up or out" types might waste it. I've seen this happen even with professors - a professor/center director at my last school took over the center's account which had several hundred thousand dollars in it that had been donated, and in just a few years he spent half of it on data he probably didn't need and the other half on lunches and conference travel, then he took another job.

The point of an endowment is to never touch the principle. If you're allowed to draw down the endowment for need-based scholarships during a depression, then you're also allowed to use it for pretty much anything the dean/president in charge of that particular endowment wants. That defeats the whole point of using the endowment to enforce budgetary discipline.

I've never actually worked at an endowment, but that's my understanding of it. Anyone else want to chip in?

Been lurking on this board for years - first time posting. Random question - is the 4% number you used based on UC's actual average return the past few years or just a guestimate?

If UC is really only doing 4%, that's terrible, especially given the size of the endowment. Over the past 10 years, colleges with large endowments (over $1bn) have returned 9.0% on average (target return is 7.2%). You want to fix the athletics budget (or many other things) - that's the easiest way to do it!

Improving from 4% to the average return of a billion dollar endowment would be nearly $75mm in extra returns annually.

https://www.nacubo.org/Press-Releases/20...rn-in-FY19

4% is an "expected value return" for an endowment fund, and the general industry standard, at least in Ohio. It leaves quite a bit of wiggle room to ensure budgets can be covered while also allowing for extra distributed income should the fund perform better (and it normally does). I'm not sure about UC's actual returns, but I'd assume they're closer to 7-7.5%...you've got to remember, endowed funds are normally placed in EXTREMELY conservative investments, as they absolutely cannot lose money based on their purpose. If you see a low year, the positive return from expected at 4% any previous year can be floated to cover, but most endowments have a point of no return that money cannot be touched regardless of purpose to ensure the viability of the fund in perpetuity. This is due on large part to many misappropriation issues that occured in the 90's across the country by individuals (mainly faculty and administrators) who had no business handling money in an operational capacity and blew threw fad more than they should've.

I think I get what you're saying here, although I think we may be speaking past each other on one key point. From what I've always heard and seen, university endowments target 7-8% nominal rates of return (basically 5% real return + inflation). If you're saying that in Ohio, we're more conservative and are targeting a 4% real return (i.e. excluding inflation) which would imply a 6-7% nominal return, I'd think that's below par but reasonable. If you're saying Ohio based endowments are targeting a nominal return of 4%, my response would be to fire everyone with any responsibility for these funds.

Granted my familiarity is more with the expectations of large university funds (Ivys, Stanford, UT, etc.), but UC's endowment is now in the top 75 in the world. The largest funds have been getting outsized returns because they are able to tap into super high return illiquid investments that smaller funds can't access. If UC isn't taking full advantage here, we are doing the State and taxpayers a material disservice. While smaller endowments and pensions probably use some variation of the 60/40 (equity/bond) index model, the best performing large endowments have really embraced alternative investments (e.g. VC/PE) to supercharge returns over a long time horizon while still managing risk.

For comparison, if UC was averaging a 7% return over the past decade, we're talking about a loss of $200-300mm over just the past ten years compared to peer institutions. To put this in sports terms, that is literally the annual financial difference between being in the ACC vs being in the AAC. I get that this is Ohio and we're conservative, but it doesn't mean we need to be stupid just because that's tradition. If those data points are true, then the endowment needs to do much, much better.

You're right on with what you're saying...4% is essentially the planned floor for returns, and the "break-even" so to speak for those returns in planned gifts, but certainly not the returns the funds shoot for. An example is probably easier to use here:

Say Company A comes to University A saying that they would like to fund a new office to develop industry training partnerships for continuing education credit to allow for licensure completion for both students and professionals? University A figures their budget for said office is $100,000/year with staff salaries and operations/expenses, and they need $300,000 to renovate an existing space to create the office. University A then comes back to Company A with an ask of $3,000,000, with a $300,000 lump sum to renovations, a $200,000 float for servicing fees to their portfolio manager and $2,500,000 for an endowed fund with an expected 4% return to fund the $100,000/year office budget. Now, they know they can get more than that 4% and general will be disappointed if they don't, but they use that as the baseline for operational payouts in endowed funds to build in a bit of security in the case of market fragility. After 5 years, the fund would be reassessed in order to allow for a budget increase once the fund's performance has been stabilized...that's how endowed positions/offices can grow without further gifts.

Remember though, that endowment funds can only be re-appropriated if the fund agreement allows (most modern agreements do, but they're also still trying to make up the losses from the last bubble and insulating from the one coming in a few years) AND the primary purpose of the gift/fund can be ensured after said re-appropriation...so your scenario of bumping up the returns by getting more aggressive with the overall portfolio could only go so far in funding athletics departments.

Full disclosure, I work on the presentations and asks for some of my college's more high profile programs when I'm not wearing one of my other 5 hats that are paid for with the price of one (thank you public employment), I am in no way a financial investment guru, so my terminology might be a bit rudimentary here.

(07-31-2020 02:24 PM)BearcatMan Wrote:  

(07-31-2020 01:16 PM)Nabeel Wrote:  

(07-31-2020 12:16 PM)BearcatMan Wrote:  

(07-31-2020 12:00 PM)Nabeel Wrote:  

(07-30-2020 01:28 PM)Captain Bearcat Wrote:  Here's a simple example: Let's say that UC gets an average of $100 million in donations from alumni each year. What can they do with it?

Option 1: spend $100 million this year
Option 2: invest it and spend $4 million every year forever (average returns on endowments are 4%)

If you do option 2 for 25 years, you end up with $100 million every year in interest. Of course, in real life there's inflation and growth in donations, so it all ends up evening out in terms of real economic value.

There's two big advantages to choosing the endowment route:
1) Long-term budgetary certainty. Donations have big year-to-year swings. But investments in faculty (which is by far any university's biggest expense) are long-term and can't be reversed if donations are too low (like 2009 or 2020). If you spend donations as they come in, then during a recession you have to lower scholarship funds (the 2nd biggest expense) or lay off most of your secretaries and academic advisors (the 3rd biggest expense) and/or cut research to the bone and endanger long-term research projects.
2) Short-term budgetary discipline. If you have a big donation year, the administrators who are "up or out" types might waste it. I've seen this happen even with professors - a professor/center director at my last school took over the center's account which had several hundred thousand dollars in it that had been donated, and in just a few years he spent half of it on data he probably didn't need and the other half on lunches and conference travel, then he took another job.

The point of an endowment is to never touch the principle. If you're allowed to draw down the endowment for need-based scholarships during a depression, then you're also allowed to use it for pretty much anything the dean/president in charge of that particular endowment wants. That defeats the whole point of using the endowment to enforce budgetary discipline.

I've never actually worked at an endowment, but that's my understanding of it. Anyone else want to chip in?

Been lurking on this board for years - first time posting. Random question - is the 4% number you used based on UC's actual average return the past few years or just a guestimate?

If UC is really only doing 4%, that's terrible, especially given the size of the endowment. Over the past 10 years, colleges with large endowments (over $1bn) have returned 9.0% on average (target return is 7.2%). You want to fix the athletics budget (or many other things) - that's the easiest way to do it!

Improving from 4% to the average return of a billion dollar endowment would be nearly $75mm in extra returns annually.

https://www.nacubo.org/Press-Releases/20...rn-in-FY19

4% is an "expected value return" for an endowment fund, and the general industry standard, at least in Ohio. It leaves quite a bit of wiggle room to ensure budgets can be covered while also allowing for extra distributed income should the fund perform better (and it normally does). I'm not sure about UC's actual returns, but I'd assume they're closer to 7-7.5%...you've got to remember, endowed funds are normally placed in EXTREMELY conservative investments, as they absolutely cannot lose money based on their purpose. If you see a low year, the positive return from expected at 4% any previous year can be floated to cover, but most endowments have a point of no return that money cannot be touched regardless of purpose to ensure the viability of the fund in perpetuity. This is due on large part to many misappropriation issues that occured in the 90's across the country by individuals (mainly faculty and administrators) who had no business handling money in an operational capacity and blew threw fad more than they should've.

I think I get what you're saying here, although I think we may be speaking past each other on one key point. From what I've always heard and seen, university endowments target 7-8% nominal rates of return (basically 5% real return + inflation). If you're saying that in Ohio, we're more conservative and are targeting a 4% real return (i.e. excluding inflation) which would imply a 6-7% nominal return, I'd think that's below par but reasonable. If you're saying Ohio based endowments are targeting a nominal return of 4%, my response would be to fire everyone with any responsibility for these funds.

Granted my familiarity is more with the expectations of large university funds (Ivys, Stanford, UT, etc.), but UC's endowment is now in the top 75 in the world. The largest funds have been getting outsized returns because they are able to tap into super high return illiquid investments that smaller funds can't access. If UC isn't taking full advantage here, we are doing the State and taxpayers a material disservice. While smaller endowments and pensions probably use some variation of the 60/40 (equity/bond) index model, the best performing large endowments have really embraced alternative investments (e.g. VC/PE) to supercharge returns over a long time horizon while still managing risk.

For comparison, if UC was averaging a 7% return over the past decade, we're talking about a loss of $200-300mm over just the past ten years compared to peer institutions. To put this in sports terms, that is literally the annual financial difference between being in the ACC vs being in the AAC. I get that this is Ohio and we're conservative, but it doesn't mean we need to be stupid just because that's tradition. If those data points are true, then the endowment needs to do much, much better.

You're right on with what you're saying...4% is essentially the planned floor for returns, and the "break-even" so to speak for those returns in planned gifts, but certainly not the returns the funds shoot for. An example is probably easier to use here:

Say Company A comes to University A saying that they would like to fund a new office to develop industry training partnerships for continuing education credit to allow for licensure completion for both students and professionals? University A figures their budget for said office is $100,000/year with staff salaries and operations/expenses, and they need $300,000 to renovate an existing space to create the office. University A then comes back to Company A with an ask of $3,000,000, with a $300,000 lump sum to renovations, a $200,000 float for servicing fees to their portfolio manager and $2,500,000 for an endowed fund with an expected 4% return to fund the $100,000/year office budget. Now, they know they can get more than that 4% and general will be disappointed if they don't, but they use that as the baseline for operational payouts in endowed funds to build in a bit of security in the case of market fragility. After 5 years, the fund would be reassessed in order to allow for a budget increase once the fund's performance has been stabilized...that's how endowed positions/offices can grow without further gifts.

Remember though, that endowment funds can only be re-appropriated if the fund agreement allows (most modern agreements do, but they're also still trying to make up the losses from the last bubble and insulating from the one coming in a few years) AND the primary purpose of the gift/fund can be ensured after said re-appropriation...so your scenario of bumping up the returns by getting more aggressive with the overall portfolio could only go so far in funding athletics departments.

Full disclosure, I work on the presentations and asks for some of my college's more high profile programs when I'm not wearing one of my other 5 hats that are paid for with the price of one (thank you public employment), I am in no way a financial investment guru, so my terminology might be a bit rudimentary here.

Now I see our disconnect (we were talking from two different perspectives)! I completely agree with your perspective from an operating perspective...internally, leadership is setting budgets based on typical operating assumptions, supplemented by something like a 4% return from the endowment.

I was alarmed because I thought you were implying that internally UC was only targeting 4% as their hurdle rate (aka minimal acceptable return) for the endowment.

For what it's worth, I was finally able to find data on UC's 10 year average return (https://www.charlesskorina.com/?p=6426), which wasn't too bad (slightly below average at 8.80%, when compared to endowments in the $1-2bn range), which on a 10 year horizon is only about $2-3mm a year. It's also better performance than the typical institutional 60/40 US model (returning 7.90% over the past ten years).

Can UC do better? Sure, but at least it's right in the middle of its current peer set.

For what it's worth the next size threshold (endowments between $2-3 bn), returned 9.6% on average. If UC were to match the performance of the next tier as it continues to grow, you're talking about at least $12-24mm more per year in returns. With numbers this large, you can make the case that UC should be investing as heavily in fund managers as it does on football or basketball.

With numbers this large, you can make the case that UC should be investing as heavily in fund managers as it does on football or basketball.

Can you imagine if they put that in the brochure? “UC ranks in the top 10 in endowment fund managers.”

(07-31-2020 06:57 PM)Nabeel Wrote:  For what it's worth, I was finally able to find data on UC's 10 year average return (https://www.charlesskorina.com/?p=6426), which wasn't too bad (slightly below average at 8.80%, when compared to endowments in the $1-2bn range), which on a 10 year horizon is only about $2-3mm a year. It's also better performance than the typical institutional 60/40 US model (returning 7.90% over the past ten years).

Can UC do better? Sure, but at least it's right in the middle of its current peer set.

Great info Nabeel. I must say it is impressive to see UC on that list that is mostly comprised of state flagship schools and big time private institutions including Ivy League. Kudos to UC's foundation/endowment forefathers and those since that time who have built an incredible portfolio for our university. You're right about the middle of our peer group as I checked back over your math [LOL]. I first noted that Cincinnati is listed #47 on the list of 60 institutions with endowments over $1 billion. However, and to your point, when you include only those endowments between $1-$2 billion [I found 25 such institutions] we are just about right in the middle of that group average 10 year return [9.02%].

Two questions from this....1) Is this just a list of the better perfoming endowments over $1 billion? To my naive eye there should be more than 60 listed.

2) Is our middle-of-the-pack return based on an investment philosophy [conservative leaning] more than anything else? Should UC consider anything different to improve performance return or is the risk to change not worth it?

(08-01-2020 07:25 AM)Bearcatbdub Wrote:  With numbers this large, you can make the case that UC should be investing as heavily in fund managers as it does on football or basketball.

Can you imagine if they put that in the brochure? “UC ranks in the top 10 in endowment fund managers.”

Uc, and most schools, could do a much better job at messaging how they handle investments like the endowment and the athletic department

Sent from my SM-G973U using Tapatalk

(08-01-2020 08:25 AM)Cataclysmo Wrote:  

(08-01-2020 07:25 AM)Bearcatbdub Wrote:  With numbers this large, you can make the case that UC should be investing as heavily in fund managers as it does on football or basketball.

Can you imagine if they put that in the brochure? “UC ranks in the top 10 in endowment fund managers.”

Uc, and most schools, could do a much better job at messaging how they handle investments like the endowment and the athletic department

Sent from my SM-G973U using Tapatalk

Maybe they do to the right market. We should ask a big donor like doss.

(08-01-2020 07:25 AM)Bearcatbdub Wrote:  With numbers this large, you can make the case that UC should be investing as heavily in fund managers as it does on football or basketball.

Can you imagine if they put that in the brochure? “UC ranks in the top 10 in endowment fund managers.”

I'm a ex-investment banker & numbers geek, so I'd love to see UC be able to publish that stat!

For what it's worth, at the biggest / wealthiest schools money management is one of the most important things they do. The reality now is that many endowments are so large and sophisticated that they've become a "hedge fund that has a university attached."

https://www.thenation.com/article/archiv...-attached/
https://www.wsj.com/articles/a-hedge-fun...1510615228

(08-01-2020 08:20 AM)UCGrad1992 Wrote:  

(07-31-2020 06:57 PM)Nabeel Wrote:  For what it's worth, I was finally able to find data on UC's 10 year average return (https://www.charlesskorina.com/?p=6426), which wasn't too bad (slightly below average at 8.80%, when compared to endowments in the $1-2bn range), which on a 10 year horizon is only about $2-3mm a year. It's also better performance than the typical institutional 60/40 US model (returning 7.90% over the past ten years).

Can UC do better? Sure, but at least it's right in the middle of its current peer set.

Great info Nabeel. I must say it is impressive to see UC on that list that is mostly comprised of state flagship schools and big time private institutions including Ivy League. Kudos to UC's foundation/endowment forefathers and those since that time who have built an incredible portfolio for our university. You're right about the middle of our peer group as I checked back over your math [LOL]. I first noted that Cincinnati is listed #47 on the list of 60 institutions with endowments over $1 billion. However, and to your point, when you include only those endowments between $1-$2 billion [I found 25 such institutions] we are just about right in the middle of that group average 10 year return [9.02%].

Two questions from this....1) Is this just a list of the better perfoming endowments over $1 billion? To my naive eye there should be more than 60 listed.

2) Is our middle-of-the-pack return based on an investment philosophy [conservative leaning] more than anything else? Should UC consider anything different to improve performance return or is the risk to change not worth it?

Never take offense at anyone checking my math! Usually it's a waste of time for that person, but hey it's a free country!

To your questions, it's not clear from the Charles Skorina article whether their list is university endowments over a billion where they had access to the performance data (which is possible) or billion dollar plus endowments that performed better than the 60/40 global index over a 10 year period (seems to be implied based on the chart's data).

For what it's worth, here's the most current list (unfortunately it's from 2018) from the Department of Education of universities & colleges ranked by endowment size (UC is #71 in size), so it's obvious that the performance ranking list does not include every endowment above $1bn.

https://nces.ed.gov/programs/digest/d19/...333.90.asp

The second question is the more interesting one to me personally...unfortunately I don't know UC's CIO Karl Scheer socially or professionally (although it looks like our circles do overlap a reasonable amount), so I can't give you any real insight into what his particular strategy is regarding the endowment. He's done a reasonable job (i.e. nothing to be ashamed of nor fired over) and is likely meeting his board stated goals. At the same time, he's not David Swensen (not that anyone really is) and hasn't done much to stand out in a space where good managers are generating alpha (i.e. real extra returns) and creating a world of real haves and have nots. It's hard to evaluate areas for obvious improvement without knowing what funds they've chosen to invest in, what strategy he's using, etc. In general, if I had to guess, he was probably (relatively speaking of course) overweight on real estate or hedge funds, and probably underweighted to venture capital and top tier private equity. But that's entirely a guess on my end.

As for whether it's worth it or not, I wouldn't expect (or recommend) UC to take some dramatic strategies to swing for the fences as the risk will likely outweigh the reward. But like most things Cincinnati, I would recommend UC invest more in new ideas, people and approaches. Not saying the University is doing this, but having an overly Cincinnati-centric view to the world is only going to leave us behind or keep UC from reaching its greatest ambitions. I would invest more in the endowment's management, really invest heavily in gaining access to the top performing funds (and their networks) both in Silicon Valley and on Wall Street. I'd also invest heavily in creating a second level of investment management talent that can grow into running a larger endowment and inject new blood and new energy into its management.

To tie this back to sports, we all like to dream about what we could do if we had the extra $20-50mm a year that comes with Power 5 membership. For my alma mater (our sports are obviously trash), we laugh about those numbers - as an example, without lifting a finger, nearly 90% of our $1bn annual research budget is covered by 3rd party royalty payments (amongst the many outsized revenue sources those schools have access to). For comparison, the entire BCS only generates about $550mm a year in revenue. If the Ivys (or Stanford) ever gave a damn about "revenue generating" sports they could relegate OSU, Alabama and Clemson to high school status in the blink of an eye.

My point here is that there are many ways to move the needle in terms of University budgets and resources (these obviously take time and investment) and the non-obvious ones to the lay person are often much, much, much more valuable than the ones that the public thinks about.

(08-01-2020 12:55 PM)Nabeel Wrote:  As for whether it's worth it or not, I wouldn't expect (or recommend) UC to take some dramatic strategies to swing for the fences as the risk will likely outweigh the reward. But like most things Cincinnati, I would recommend UC invest more in new ideas, people and approaches. Not saying the University is doing this, but having an overly Cincinnati-centric view to the world is only going to leave us behind or keep UC from reaching its greatest ambitions. I would invest more in the endowment's management, really invest heavily in gaining access to the top performing funds (and their networks) both in Silicon Valley and on Wall Street. I'd also invest heavily in creating a second level of investment management talent that can grow into running a larger endowment and inject new blood and new energy into its management.

Thanks my man. Any way we can get you in front of Karl Scheer or his Board LOL?

These were all great posts. I don't have a clue what you're talking about, but thanks.

Updated list to include cuts by George Washington...

Old Dominion - Wrestling
Cincinnati - Men's Soccer
Florida International - Men's Track, 22 AD employees furloughed, AD Director Pete Garcia deferring salary for one year
Akron - Men's Cross Country, Men's Golf, Women's Tennis
Bowling Green - Baseball
Furman - Baseball & Men's Lacrosse, cut 45 scholarships, voluntary salary reductions, 5.5% reduction in operating budget
Wisconsin-Green Bay - Men's and Women's Tennis
Central Michigan - Men's Indoor and Outdoor Track
East Carolina - Men’s and Women’s Tennis, Men’s and Women’s Swimming and Diving
Winthrop - Men's and Women's Tennis
UConn - Men's Cross Country, Men's Swimming and Diving, Men's Tennis, Women's Rowing
Boise St - Baseball & Women's Swimming and Diving
Stanford - Men's and Women's Fencing, Field Hockey, Lightweight Rowing, Men's Rowing, Co-ed and Women’s sailing, Squash, Synchronized Swimming, Men’s Volleyball and Wrestling
Dartmouth - Men's & Women's Golf, Men's Lightweight Rowing, Men's & Women's Swimming and Diving
George Washington - Men's Indoor Track, Men's Tennis, Women's Water Polo; non-NCAA Men's Rowing, Sailing, Men's & Women's Squash

Running list of NCAA sports that won’t be returning after the Covid-19 pandemic.

Thought I'd plop this here...