Trustees hear year-end report on endowment, appoint investment council members

UNIVERSITY PARK, Pa. -- Penn State's endowment and similar funds increased by $174 million in fiscal year 2013, and the total market value reached a record high of $2.03 billion as of June 30, 2013, according to a report to the Board of Trustees today (Sept. 20).

John Pomeroy, the University's chief investment officer, explained that in addition to endowment and similar funds asset values, the University also reported asset values for non-endowed funds, which were commingled into the University’s long-term investment pool to strategically fund the University’s liability covering post-retirement health care benefits for Penn State retirees. The generally accepted accounting practice for liability coverage for retiree benefits is referred to by the Financial Accounting Standards Board as Financial Accounting Standards No. 106, or FAS 106.

Those funds -- totaling $1 billion transferred over four years, including $718 million during fiscal year 2013 -- previously were invested in the University’s operating pool of fixed-income securities for the same purpose of funding retiree health benefits. Additional income realized from this transfer to the long-term investment pool relieves the University’s annual operating budget of approximately $43 million of commitments related to this ongoing obligation.

As a result of these additions, the University’s long-term investment pool stood at $3 billion as of June 30, 2013, including $1 billion of non-endowed funds and $95.7 million of similar funds, consisting of deferred gift assets, such as charitable remainder trusts and gift annuities, Pomeroy said.

Penn State's endowment performance placed it near the top of the first quartile among its peers for actual endowment returns over the three- and five-year periods ending June 30, 2013, according to a survey of nearly 150 colleges and universities by Cambridge Associates, a consulting firm that provides comprehensive reviews to universities on their investment approaches. "The University's three-year performances actually place it in the top 5 percent of institutions surveyed, so we continue to compare quite favorably with our peers," Pomeroy added.

Showing a five-year timeline for Penn State's endowment investment program, Pomeroy noted that the long-term growth of the endowment's market value, from $ 1.18 billion in 2009 to the current $1.93 billion in 2013, an increase of more than half.

The Penn State Investment Council, created by the Board of Trustees in response to the University’s increasing asset base and complex investment strategies, provides direct oversight of the endowment and long-term investment program. The council regularly reviews asset allocation, new asset classes, investment strategies and manager performance. Trustees reappointed three members and named one new member, all non-University employees, to the investment council. Reappointed for three-year terms ending in 2016 are Carmen Gigliotti, managing director, private equities of DuPont Capital Management; Colleen Ostrowski, vice president and treasurer ITT Corporation; and Linda B. Strumpf, chief investment officer (retired), The Helmsley Charitable Trust. Newly appointed to a two-year term ending in 2015 is Joseph B. Markovich, managing director, J.P. Morgan Private Bank.

Last Updated September 20, 2013