ACU’s endowment has increased despite the volatility of the stock market last year.
“The movement of the stock market influences all markets, but there’s not a direct correlation between what happens in the stock market and what happens in our portfolio,” Jack Rich, chief investment officer, said.
In the year-long period ending June 30, the ACU endowment earned 15.1 percent. Rich said the average return over the last five years has been 9.4 percent, which has pleased the university.
The endowment has increased in the last year to more than $270 million. It peaked at $293 million in May 2008 and fell to $225 million in March 2009, Rich said.
He said ACU lost about $45 million in market value between May 2008 and May 2009 but has since made up the losses in terms of returns. However, he said the endowment is not back to its peak value because the university has distributed $30 million to areas such as student scholarships and university operations.
“Over our history, we’ve received $146 million worth of gifts that have gone to the endowment; we’ve paid out $162 million in distribution back to university,” Rich said. “So, even though we’ve paid out more than we’ve received in gifts, we still have an endowment of $270 million.”
Rich said the stock market certainly plays a role in the endowment, but the relatively small amount of total assets ACU has invested directly in the stock market reduces the endowment’s volatility. He added that ACU tends to underperform when the stock market goes up rapidly, but tends to do much better than the market when the stock market drops rapidly.
“It’s better if your investments are less volatile over the long term,” Rich said. “Over many years, the less volatility you have in your investments generally the better.”
Dr. Terry Pope, professor of finance, said the stock market had a fairly strong spring and a weak summer. While it is having a strong fall so far, he said, it continues to be somewhat volatile.
“The impact that has on people’s thinking is, ‘well, maybe this is not for me, and I’d like to do something else,’ so they’ve sought safer havens,” Pope said.
Instead of investing in the stock market, many people have bought securities from the U.S. treasury or put money in the bank where they know it will stay safe.
The high employment rate has also had a dampening effect on the economy, which Pope said goes full circle.
“In order to get the unemployment down, there’s got to be more hiring, but to be more hiring there has to be more profitability, and then once the employment rate starts dropping, then consumer spending comes back stronger,” Pope said.
This same philosophy may apply to donations to the endowment.
“Donations tend to follow economic cycles,” Rich said. “So, our donations [to the endowment] have been down over the past three years as the economy has been down. Typically we’ll see donations improve as the economy improves.”