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November 3, 2006 > News > Rice endowment nears $4 billion

Rice endowment nears $4 billion

By Eric Doctor | Thresher Editorial Staff

The value of the Rice’s endowment increased 8.9 percent to $3.987 billion during the 2006 fiscal year. The increase includes a $524 million return on investments — a 14.5 percent gain — as well as $28 million in donations and gifts.

Vice President for Investments and Treasurer Scott Wise (Will Rice ‘71) said the 2006 return is favorable, and the greatest returns were in international stocks, real estate and oil and gas investments.

The endowment is modeled to aim for a 9 percent average return on investments over a three-year period, Wise said. In the past three years, the endowment has averaged a 15 percent return. Over the past 10 years, the average return was 12 percent.

The endowment also compared favorably with the stocks and bonds markets. The Standard and Poor’s 500 stock market average rose 8.6 percent last year, and the Lehman Aggregate Bond Index fell .8 percent for an adjusted average of a 6.4 percent gain.

Wise said although there are no major changes to the target levels of investment allocation, the Investment Office is moving money away from publicly traded equities and into venture capital, real estate and long and short equity in order to meet target allocation levels.

“We expect to have higher returns out of those asset classes over time — higher than you would get out of traditional stock or bond investments,” he said.

Wise said diversification of investments led to this year’s favorable increase because no especially large portion of the endowment is tied up in any single investment.

“[What you get] with a concentrated portfolio is a lot more volatility,” he said. “That’s one of the reasons you diversify — to cut down on your volatility.”

Vice president of Finance Kathy Collins said the Finance Office takes extra precautions to prevent market volatility from affecting the budget. The endowment spending policy ties the payout to the previous three years’ performance rather than to a single year’s.

The payout is supposed to fall between 4.5 and 5.5 percent of the three-year average value of the endowment, Harris said.

This year, $176 million of endowment funds were used to fund 45 percent of the total operating budget. The rest of the funds were reinvested in the endowment.

End of article

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