Out of all of Michigan State University's financial assets, the university's endowment is arguably one of the least understood. The fund is made up of donated money and reinvested returns and is often cited as a key indicator of MSU's monetary worth.
MSU’s endowment had a market value of $3.9 billion in June 2021. The endowment’s value has grown substantially in the last decade with an increase of $2.2 billion since 2011.
This year also saw massive returns for collegiate endowments nationwide. MSU’s endowment return on investment was 41.7 percent in the fiscal year. According to a Bloomberg article, much of the growth was tied to university investments in fintech and other technology.
MSU holds the fifth-highest endowment of all Big Ten schools, behind Wisconsin, Minnesota, Northwestern and Michigan.
While a university’s endowment is oftentimes used in the context of worth, the spending of the money within it is very restricted.
The endowment itself is mainly made up of donations that have been invested in the MSU Common Investment Fund, or CIF. The CIF is essentially a mutual fund with the money tied to a number of investments managed by the MSU staff assigned in the MSU Board of Trustees’ investment policy.
The CIF is diversified into multiple sectors. As of June 30, 2020, the biggest allocations of CIF funds were in global equities, private investments and hedge funds. Fixed income, private real assets, private real estate and emerging markets equity make up smaller, but significant portions of the allocation.
As of March 31, MSU's global equity holdings include $302.3 million in Grantham, Mayo & van Otterloo and $275 million in Royal DSM. The university’s largest private investments are $53.7 million in Foundation Capital Fund 8 and $51.1 million in TrueBridge. The largest hedge fund in the CIF is BlackRock European at $86.6 million.
To put it in layman’s terms, the endowment is a pool of mostly donated money tied to various assets MSU manages.
Additionally, the money donated can be contracted to only be used in certain ways, which is generally determined by the donor.
The endowment itself is not spent by the university. The $3.9 billion donors gave the university stays intact and invested into the CIF, and is never used to pay for anything at MSU.
Returns from the fund can be spent, though. When a donor makes a donation into the endowment fund, they contract a predetermined percentage of the annual return to be used for a specific purpose.
The excess return above the percentage is added back into the principal investment, growing the value of the donor’s initial donation and protecting against inflation.
To simplify: the endowment fund itself can’t be touched by the university, but the money made from investment returns may be spent for specific purposes outlined by the donors, up to a specified amount. Any excess money made is added back into the endowment.
“Programmatic spending” refers to the agreement made by the donor when they create an endowment. These agreements outline what the returns from the donation can be used for, and are generally determined by the donor themselves.
To give an example, an MSU engineering alumna could donate $50,000 to the endowment and agree a number of returns from the donation will be used to give a scholarship to one engineering student per year. The principal amount of $50,000 will never be touched by the university, and the returns can only be used for that one purpose.
MSU Chief Financial Officer Lisa Frace said a majority of money generated from the endowment is used for scholarships and professorships.
While the MSU endowment is a significant financial resource for the university, the system is purposely restrictive in its use.
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