After historic losses in the 2008-2009 fiscal year, administrators predict that the University’s endowment will reflect steady growth this year.
The University’s endowment and similar funds has increased an estimated 15 percent in the 2009-2010 fiscal year, said Executive Vice President Tallman Trask, a member of Duke Management Company’s ten-person Board of Directors. The fiscal year officially ends June 30, and more concrete evaluations of the University’s assets will be available in August, Trask said.
“We’ve clearly come back a fair bit from where we were,” he said. “I would guess it’s going to be between 15 and 20 [percent], and if you made me guess, I would say it will be closer to 15 than 20.”
At the end of the 2008-2009 fiscal year, the endowment was worth approximately $4.4 billion, according to the University’s 2008-2009 financial statements. The long-term pool, in which 98 percent of the endowment was invested—sustained a 24.3 percent loss in the period.
During the first three-quarters of the current fiscal year, however, the endowment began to recover. On March 31, 2010—when the value of the endowment was last reported—the University pegged its worth at $5 billion, Vice President for Finance Hof Milam wrote in an e-mail. Trask’s estimate of the endowment’s current worth implies that its value has remained relatively flat in the last quarter.
“I will pass on this one,” Milam wrote in response to Trask’s estimate. “I make it a habit not to make point predictions on endowment returns.”
The endowment funds between 15 and 16 percent of the University’s annual operating budget, Milam wrote. This number has remained relatively stable from year to year. The Board of Trustees approved a $1.93 billion budget for the upcoming fiscal year at its May meeting, a 5.6 percent increase from this year’s budget.
When the fiscal year ends Wednesday, DUMAC will begin to evaluate the worth of the University’s assets. Even then, though, determining the exact value of the University’s endowment at a given time is nearly impossible given the assets’ illiquid nature, Trask said. Estimates at the end of each individual quarter of the year—like those from March 31—are especially subjective, he added.
“We could put [all the University’s funds] in federally insured demand deposits in 30,000 banks—which is what it would take to get federal insurance on as much money as we’ve got—and I could tell you every day to the penny what it was worth,” Trask said. “Our returns would be like 0.3 percent instead of 15 percent. You have to live with the fact that these numbers are never exact.”
Before numbers are released in August, the University’s money managers will provide administrators with estimates, some of which will be sent back for further clarification, Trask said. The simplicity of valuing assets varies greatly by asset type—long-range private equity funds and real estate are currently the most difficult to value.
“If I owned a position in some foreign private equity firm—of course there is no market and there is no trading—and the expected return is a lot of cash three years from now, it’s very hard to tell you exactly what it was worth on June 30,” he said. “Because the answer is it’s actually worth what somebody would pay for it, and since it’s not for sale and nobody could buy it, what it’s worth is an interesting exercise.”
A clearer valuation will be available in August, however, as the estimates of the University’s endowment for the fiscal year’s end are the second most accurate appraisal of the year after those made at the end of the calendar year, Trask said.
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