University News

U. to return to target range for endowment draw

By
Metro Editor
Friday, September 10, 2010

The University will draw from its endowment at a significantly lower rate this year, reducing payout by about 20 percent from the last fiscal year, said Beppie Huidekoper, executive vice president for finance and administration.

Last year’s payout rate — a combination of endowment returns and new gifts to the University — stood at over 6.5 percent of the endowment’s market value. Administrators project that this year’s rate will be closer to 5.1 percent.

Payout is additionally measured as a percentage of the endowment’s average value over the previous three years. Administrators try to keep this rate between 4.5 and 5.5 percent, Huidekoper said. Last year’s payout rate, when measured as a percentage of the endowment’s three-year average, stood at the upper limit of this window, at 5.5 percent. But for fiscal year 2011 — the current year — the payout rate will be closer to 4.5 percent of this three-year average.

Endowment returns are an important income source for the University’s budget, and administrators aim to draw at rates that allow for the fund’s continued growth. Last year’s exceptional 6.57 percent payout rate was a response to financial strain following the endowment’s significant decline in 2008 and 2009.

Even with this decline, Huidekoper said, the endowment will have increased in value by an average of 5.9 percent between July 2001 and June 2011, excluding gifts.

Brown’s payout rate is “very similar” to peer institutions, she said. The general goal across the board is to maintain an average rate of about 5 percent, though she added that there are “many different policies about how to get there.”

Brown’s 20 percent decrease in payout for the current year follows a 1 percent decrease in fiscal year 2010. In comparison, Dartmouth and Stanford reduced payout by between 10 and 15 percent last year, allowing them to make a less abrupt reduction for the current year, Huidekoper said.

Most institutions — including Brown — also offered a voluntary retirement program to staff in response to budget constraints. Over 50 percent of those eligible, 139 total, took the University’s early retirement packages last spring.

“It was a better year than expected,” Huidekoper said. The Brown Annual Fund had good returns and financial aid expenses were lower than anticipated, she added. The University was able to cover the one-time cost of early retirement packages without dipping into reserves.

Looking ahead, administrators are “really hopeful that we don’t have to make more cuts,” Huidekoper said. “But we have to think about revenues. … It will be a question of how.”

The budgeting process for the fiscal year beginning July 2011 will officially begin on Sept. 20. Faced with growing financial aid costs, administrators must find new revenue streams. The Campaign for Academic Enrichment, which has raised more than $1.5 billion since it launched in 2002, comes to an official close Dec. 31.