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Endowment valued at over $7 billion in 2008

Kaitlynn Riely | Friday, September 26, 2008

The Notre Dame endowment pool brought in a 5.8 percent return for the last fiscal year, but Vice President and Chief Investment Officer Scott Malpass said a “tough year” lies ahead, given the country’s current economic problems.

The endowment pool grew to just over $7 billion by the close of the fiscal year ending June 30, 2008, Malpass said Thursday.

Notre Dame exceeded its benchmark return of up 0.8 percent, Malpass said, in a year when other indexes, including the S&P 500 and Dow Jones, were down in the same time frame.

“It just goes to show you what a tough year it was in the markets,” Malpass said. “For us to be up anything is a great year given what happened.”

The Observer reported last year that the Notre Dame endowment was $6.54 billion, up from $5.08 billion the year before.

Malpass credited the University’s positive rate of return this year with its diversified portfolio, which is risk controlled and invests almost half its funds in non-U.S. dollar assets. Malpass also praised his core investment team – 15 Notre Dame graduates – and 170 investment partners spread across the entire endowment portfolio with achieving a positive return in a “tough environment.”

But Malpass said he was “downplaying expectations” for next June’s return.

“I think it’s going to be a tough year,” he said. “I don’t know how it will end up, but I think it will be a tough year. If we are positive again this year, I think it will be a minor miracle.”

The current uncertainty in the financial markets – from the problems stemming from the subprime mortgage crisis to the bankruptcy declared last week by global financial services firm Lehman Brothers, the collapse of other financial institutions and now, a possible Congressional bailout for many corporations, has caused what Malpass characterized as the biggest crisis in his 20 years at Notre Dame.

But the University invests with the knowledge that the stock market experiences downturns, he said. And crises have happened before in the financial markets, Malpass said, giving examples like the attack on Pearl Harbor in 1941, the oil embargo in the 1970s and the Sep. 11 attacks in 2001.

“It’s really important to know that we are a long-term investor,” Malpass said. “We are an endowment, supporting Notre Dame in perpetuity. We know there’s going to be crisis periods in the markets.”

Malpass did not have numbers available, but he estimated Notre Dame’s endowment is probably down two to three percent since the beginning of the fiscal year.

“We are down but it’s a reasonable outcome given what happened in the markets,” he said. “It’s nothing extraordinary.”

Notre Dame’s investment team and managers are approaching the market situation well, he said.

“I don’t like to be down ever, but you can’t be up in this period. I don’t care how diversified you are,” Malpass said, with the caveat of investing solely in U.S. Treasury bills and bonds.

Regulation and oversight could have prevented the collapse of financial institutions on Wall Street, Malpass said, but Notre Dame has been able to protect and preserve its capital because of its investment approach.

Notre Dame’s investments are more diversified than most, he said, and the University puts more in hedge funds that can go long and short. The University has also done well by investing in gold, Malpass said.

The ‘financial lifeblood’ of the University

At the close of fiscal year 2007, the rate of return on the endowment pool was 25.9 percent, which placed Notre Dame in the top two among rates of return on university endowment. This year, the rate of return was substantially lower, but everyone else experienced the same weak markets, Malpass said.

Judging from the numbers he has seen from other schools, Notre Dame will probably rank in the top five or six in terms of endowment returns of the top 20 endowments, he said. Top five or six is an estimate, as the rankings have not been released yet and Malpass said he has not seen all the numbers from other schools.

The long-term goal of the endowment, Malpass said, is to beat inflation, and ideally gain a return of 5 to 6 percent above inflation. The endowment, he said, is the “financial lifeblood” of the University.

“It’s supporting kids, students and faculty,” he said. “So it’s vital.”

Notre Dame’s endowment was the 14th largest educational endowment in the country last year, up from 25th largest 20 years ago, Malpass said. It is the largest endowment for a Catholic university.

In the long run, Malpass said, with good fundraising through the Spirit of Notre Dame campaign and good investments, he thinks Notre Dame can break into the top 10 in endowment size rankings in the next 10 years.

Malpass, who marked his 20th anniversary at Notre Dame this August, said the senior leadership at the University, especially the investment committee of the Board of Trustees, have allowed him to build a strong team of investors. The team he built has had great stability and little turnover, Malpass said, with four of his six directors working with him for 10 years or more.

“When I came in 1988, the pool was $425 million. Now we are just over $7 billion …” he said. “It’s been a wonderful 20 years.”

Twenty years ago, the endowment supported less than five percent of Notre Dame’s operating budget, Malpass said. It now funds over 20 percent of the cost of running Notre Dame.