FAYETTEVILLE — The endowment supporting the University of Arkansas, Fayetteville increased in market value by 3.05% to about $1.22 billion during the 12-month period that ended June 30, according to an annual report released Thursday.
The market value rose more than 80% over the course of the decade from $673.1 million in fiscal 2010, a period that included large gifts to UA and, for most years, net returns on the investment of assets making up the endowment.
The rise during fiscal 2019 was the third consecutive year of growth in the endowment’s market value and pushed the UA endowment up one slot to 95th in annual rankings published by the National Association of College and Business Officers and financial services organization TIAA.
The latest Survey of Endowments ranked 785 U.S. and Canadian endowments supporting colleges and universities.
“The university is pleased that the value of the endowment continues to increase because as the value of the endowment increases so does its impact,” UA spokesman Mark Rushing said in a statement. “Spending from the endowment supports student scholarships, graduate fellowships, faculty chairs and professorships, and academic programs.
Donor gifts boost endowments to colleges and universities, but the market value can rise or fall from year to year depending on how investments fare and how much is spent.
Rushing said that for the endowment that supports UA, there was a net investment return of 5.9% in fiscal 2019.
Colleges and universities generally spend only a small portion of endowments each year. In fiscal 2019, $48 million from the endowment was spent, Rushing said, a rate of 5%.
“The spending rate policy has not changed in more than a decade and continues to be a total of 5%,” Rushing said in an email.
Based on the report, the next-largest college endowment in Arkansas supports Hendrix College, a private institution in Conway. The market value for the endowment supporting Hendrix dipped by 2.09% to $201 million. The ranking of the Hendrix endowment fell to 331st from 328th in the previous year’s survey.
In a statement, Shawn Mathis, associate vice president for business and finance for Hendrix, said the study “captures a point in time, so it does not fully reflect the performance of the portfolio and the inner workings of the endowment.”
Mathis said that for the Hendrix endowment there was an investment return of 3.4% for the 12-month period that ended June 30.
“The endowment return is only a piece of the overall endowment value. The year-over-year value is also affected by investment returns, contributions and normal annual operating draws,” Mathis said.
Other endowments supporting Arkansas colleges and universities increased in market value, according to the annual survey. The endowment supporting Harding University increased to $151.4 million, up 6.92% from a market value of $141.6 million the previous year. The Christian university is in Searcy.
John Brown University, a private Christian university in Siloam Springs, saw its endowment increase to $125.6 million, up 4.61% from a market value of $120 million the previous year. The University of the Ozarks, a private university in Clarksville, had its endowment increase to $115 million, a rise of 0.21% from the previous year’s reported market value of $114.8 million. No other endowments for an Arkansas university were valued at more than $100 million.
Sandy Baum, a senior fellow at the Urban Institute, has written about university endowments and their purpose.
“Colleges and universities want to have some asset that will be there and generate income, so that they know that over the long term, they’ll have a stream of income to supplement their tuition revenues and, in the case of public institutions, what they get from the state,” Baum said.
The annual report listed aggregate data on the investment returns for college endowments. Participating institutions in the survey had endowments that returned an average of 5.3 percent, net of fees.
This return was less than that of the S&P 500 index, which encompasses 500 top U.S. companies and is considered a benchmark economic indicator. The index had a rate of return of 8.22% for the same time period of the endowment report, according to historical data published by Investing.com.
“No endowment manager invests solely in the S&P as that creates too much risk,” Rushing said. The strategy for university endowments “reflects an investment strategy that employs a diversified portfolio comprised of multiple asset classes to help reduce risk,” Rushing said.
The University of Arkansas Foundation manages endowment investments, paying fees for investment services.
The investment management fees paid in fiscal 2019 totaled $3.1 million and were paid by the foundation and the separate University of Arkansas Fayetteville Campus Foundation, Rushing said. The Fayetteville Campus Foundation exists specifically to support the UA Honors College and the university’s graduate school, according to tax return documents.
Baum said students shouldn’t expect tuition rates to drop and endowments to go up in value. But, she said, there’s “a real correlation” between having a strong endowment and providing student aid to reduce the price of attendance actually paid by lower-income students.
Universities taking part in the annual survey used 49% of their endowment spending for student financial aid, according to the study. The study also found 17% of endowment spending went toward academic programs, 11% for faculty support and 7% to campus facilities.
In response to a question from the Democrat-Gazette about how the $48 million in UA endowment spending was directed in fiscal 2019, Rushing said 43.62% went to student financial aid and 31.38% went to “programmatic support, academic divisions and research.”
Another 18.8% went to support faculty and staffing, Rushing said. No other area received more than 3% of endowment spending in fiscal 2019, with 2.82% of the spending going to “operation and maintenance of campus facilities,” Rushing said.
Rushing added that endowed gifts carry restrictions based on donor wishes. The endowment consists of gifts to the university to support “a specific area or need,” he said. Rushing said the university believes its “endowment spending is similar to the aggregate spending of participating institutions” in the survey.