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Endowment jumps $1.4 billion

Karen Langley | Thursday, September 20, 2007

The Notre Dame endowment pool has grown by more than $1.4 billion during the last fiscal year, making it likely the University will continue to rank in the top two or three American universities in investment performance, Chief Investment Officer Scott Malpass said Wednesday.

The endowment grew at an annual rate of 25.9 percent during the 2007 fiscal year -among the top rates of return of all university endowments, Malpass said.

This rate of return is markedly higher than the 17.7 percent returns experienced by the TUCS Large Fund Median, a compilation of other endowment foundations and pension funds of more than $1 billion, Malpass said.

The University endowment pool was $6.54 billion when the 2007 fiscal year ended on June 30. A year earlier, the endowment pool was $5.08 billion.

Investment strategies at Notre Dame differ from those at some peer institutions in that University investments must follow the guidelines of Catholic social teaching, Malpass said.

“It’s ingrained in everything we do,” he said. “As a Catholic university, it’s very much consistent with our mission.”

A formal policy requires investors to comply with the Catholic bishops’ guidelines on investments and forbids investment in 350 companies whose practices are considered in violation of Catholic social teaching, he said.

Despite the guidelines, Notre Dame ranks in the top two or three schools in the nation in raw endowment growth during the past 20 years, Malpass said.

The growth can be attributed, at least in part, to “revolutionized and modernized” approaches to investing since the late 1980s, he said.

The investment office has diversified its investments so that Notre Dame’s endowment pool now ranks among the most global funds in the nation, with about 40 percent of assets in non-United States currencies, he said.

The University’s investors have also made a large commitment to private investments – including private equity, real estate and private energy funds, he said.

“We get access to the best investment firms in the world,” Malpass said. “They love Notre Dame as a partner. … They know we’re going to be there with them.”

Malpass called this summer’s economic turbulence caused by a sub-prime mortgage crisis “a challenging period” but said the University “came through the summer very well.”

Though University investments have had high returns, endowment growth is also tied to a high rate of donations by alumni, Malpass said.

More than 54 percent of Notre Dame alumni now make some financial contribution to their alma mater – a statistic that places Notre Dame second among American universities for alumni participation, he said.

The University’s $6.54 billion endowment pool should be the 14th or 15th largest endowment of American colleges this year, though figures have not yet been released nationally, he said.

Harvard’s endowment is the largest in the world at $34.9 billion, the Boston Globe reported in August.

During the next few years, Malpass said, he hopes to increase the percentage of the University operating budget that comes from the endowment. When he began at his position in 1988, three or four percent of the operating budget came from the endowment. Today, about 20 percent of the operating budget is funded from the endowment.

The income from the fund allows the University to slow down the growth of tuition and other student charges.

He also hopes Notre Dame will break into the top 10 endowments in the nation.

“There’s other people out there who have pretty good investment offices and fundraisers,” he said. “But I think within the next 10 years, it’s very possible.”

A long history

The growth of the University endowment has been substantial since University President Emeritus Father Theodore Hesburgh, whom Malpass described as “the godfather of the endowment,” took office in 1952.

At the beginning of the 1950s, there were five colleges and universities in Indiana with larger endowments than Notre Dame’s, Malpass said.

“When I became president, I realized if you took the 20 top endowments in the country, you got the 20 best schools in the country,” Hesburgh said.

These highly endowed schools were able to hire top faculty, sponsor leading research and build excellent libraries, he said.

When he became president, the University had a $7 million endowment with an annual operating budget of $6 million.

“It wasn’t like we were 30th or 20th and woke up,” Hesburgh said. “We were not on the chart when we began. An endowment of $7 million was zilch, and a budget of $6 million was laughable.”

Hesburgh described how his executive vice president and close friend Father Ned Joyce, a certified public accountant, helped Hesburgh make financial decisions for the University during his presidency.

“I told him, Ned, on the big decisions, the fiscal and monetary stuff, you’re the guardian of the gate,” he said. “You tell me what to do.”

Hesburgh later served on the board of Chase Manhattan Bank, then the third largest bank in the United States. He advised the board on any moral issues involved with potential investments, he said.

Today, the endowment pool continues to aid the growth and development of the University campus, student body and faculty.

About 30 percent of the endowment pool goes to scholarship funds, and about 25 percent goes to endowed faculty chairs, Malpass said.

Hesburgh said those funds are crucial for the University’s development.

“We’re at a point today, which very few schools are, where we can pick the very best class of 1,800 people out of over 14,000 applicants without even looking at their financial needs,” he said.

The University also needs funds available to compete for top faculty from around the world, he said. Since he created the first endowed professorship early in his presidency, that number has grown to more than 200 endowed faculty members, Hesburgh said.

“I’m a little biased, of course – this is my business – but I think of endowments as the eighth wonder of the world,” Malpass said. “What other concept is there where you have a permanent fund that grows over time, provides perpetual operating support, critical, essential operating support to an institution.”

Endowments were first created in the United Kingdom, likely during the 12th century, when land was bestowed upon religious orders, he said.

“They’re really an American phenomenon today,” he said. “It’s a reason our higher education system is so strong.”