Wealth flows to Duke, UNC

Their endowments and NCSU's swell

The growth of endowment funds at Duke University and UNC-Chapel Hill outpaced most colleges in the country among those who oversee funds of more than $1 billion, according to an annual survey released Thursday.

A combination of investment returns and new gifts increased the endowment at each school by more than 30 percent, according to the National Association of College and University Business Officers.

Duke's endowment of $5.9 billion as of June 2007 ranked 15th among the 785 colleges and universities surveyed.

UNC-CH ranked 30th at about $2.1 billion.

The endowments at N.C. State University also did well, growing 29 percent. But at $535 million, the fund didn't crack the top 100.

Endowment funds are increasingly important for universities as they depend on a portion of the investment returns to pay for new faculty positions or increase financial aid for students.

That, in turn, gives schools with the largest endowments tremendous influence in the competition for top students and faculty.

Harvard University reported the largest endowment fund in the nation last year with $34.6 billion. Yale University was a distant second at $22.5 billion.

Republican Sen. Charles Grassley of Iowa and Democratic Sen. Max Baucus of Montana immediately jumped on the report, asking schools with more than $500 million in endowments to provide details of how they spend the money. The two top members of the Senate Finance Committee have argued in the past that large tuition increases can't be justified at schools that manage such large endowments.

University officials have argued that the endowment money often comes with very specific stipulations about how it can be spent. They also say they should not be required to spend a set amount of money from a fund that varies with market conditions.

About half of all endowment money is invested in stock, with an increasing amount of that going to international equities, according to the survey.

The use of hedge funds also continued to play an important role in the investment mix. Schools with endowments of more than $1 billion invested an average of 20 percent of that money in hedge funds, which are a mix of investments including some that are considered risky. Hedge funds also require less detailed reporting.

The schools saw an average return of 17.2 percent for the year compared with a 20.6 percent increase in the S&P 500 for the same period.

Duke, UNC-CH and NCSU all topped the average return of other schools, but Richard Mann, vice chancellor for finance and administration at UNC-Chapel Hill, said the more important goal of any fund is to remain diversified.

"You want to ride out the rise and fall of any market," Mann said. "If you are diversified, you are not going to get the very best returns, but you won't get the worst when you hit a crater like we just did."

Fund managers will move money when markets shift, but "you're not going to see them put everything into bonds," Mann said.

Markets will need to stage a big comeback in the coming months if schools are going to post similar returns in the current year, university officials said.

"If you find somebody who says they outperformed in the recent time period, I'd like to talk with them," said NCSU Treasurer Kathy Hart.

But the increases of the past several years ensure that endowment spending will remain steady for now. Both Duke and Carolina spend about 5 percent of the fund's annual value each year, while reinvesting additional earnings and new gifts.

In addition, recent fundraising campaigns at all three schools virtually guarantee money will keep flowing into the endowment funds.

While some of that money is designated for specific buildings or other projects, university officials say significant amounts are also put directly into school endowments.