Endowment Q&A - Inspire Innovation - Carnegie Mellon University

Endowment Q&A

Learn More About the Endowment

General Information

What is an endowment?
What does the endowment do?
How does the endowment support the university?

History & Importance

What is Carnegie Mellon's endowment history?
Why is having a healthy endowment so important to Carnegie Mellon?

Investment Strategy

Who manages the endowment?
What is Carnegie Mellon's investment strategy?
How does market volatility affect Carnegie Mellon's payout?
Who are the university's investment advisors and how are they selected?

Balancing the Budget

What steps does Carnegie Mellon take to balance its budget?

Spending

What is Carnegie Mellon's spending policy?
What considerations does Carnegie Mellon take into account with regard to spending from endowment funds?
What types of costs are supported by endowed funds?

Gift Opportunities

How is an endowed fund established?
What are some examples of opportunities to endow educational activities and programs at Carnegie Mellon?
What are some examples of other ways to make a gift to the endowment?
How do donors benefit from the endowment?

Contact Information

General Information

What is an endowment?
Endowment refers to assets that are invested in perpetuity, unlike expendable funds which are typically used for immediate needs.

Academic endowments came into being during the Middle Ages, when early European universities relied on the income from rent on land holdings donated by wealthy patrons.

Endowments have changed a lot since then, but they remain fundamental to the financial stability of colleges and universities, large and small. Endowment funds provide a steady predictable source of income over time, on which the university can make commitments and build its programs.

Carnegie Mellon’s endowment is not, as many may think, a single “pot” of money that can be used as the university wishes. In fact, many separate endowed funds comprise the endowment, and each has its own stipulations about how and for what purpose the income may be used, as specified by the donor. As Carnegie Mellon’s endowment grows through prudent investment management and gifts, the endowment will help to ensure the strength and stability of the university.

What does the endowment do?
Carnegie Mellon’s main sources of income are tuition revenue, research grants, and private support, which includes endowment returns and new gifts. Restricted gifts support scholarships, book funds, professorships, or programs, as specified by the donors. Unrestricted gifts support the general operating budget, enabling the university to meet its most immediate needs and invest in new opportunities and initiatives that are in the best interest of the future of Carnegie Mellon.

Endowment income provides stability against downturns in the economy, federal budget cuts and decreases in the federal overhead rate, fluctuations in the political climate, and other changes.

How does the endowment support the university?
A strong endowment allows Carnegie Mellon faculty and administrators to pursue critical initiatives that enhance our ability to be a leader in higher education and research. In addition to providing stability for the future, endowment gifts help the university attract and retain top faculty and students.

The benefits to a faculty member who holds an endowed professorship—which is a faculty appointment supported by the investment return of an endowment gift—include opportunities for enhanced teaching and research and increased prestige. Students benefit from the scholarships, fellowships, and the excellent teaching, programs, and research initiatives that endowment support helps make possible. Through endowment resources, activities can be supported that might not otherwise have had a chance to exist. Generally speaking, the strongest and most stable institutions have strong endowments.

History & Importance

What is Carnegie Mellon’s endowment history?
Carnegie Mellon’s endowment history dates back to Andrew Carnegie’s founding gift of $1 million in 1900. He contributed a second gift of $1 million in the following year and $3.7 million in 1913. Carnegie Corporation then donated two gifts of $8 million in 1921 and 1946, the last of which was granted when Carnegie Tech raised $4 million in matching funds. The alumni fund began in 1948, and since that time gifts from alumni, parents, and friends, together with appreciation, have increased the endowment to its present market value.

Why is having a healthy endowment so important to Carnegie Mellon?
Carnegie Mellon remains very dependent on tuition dollars, more so than many other national research institutions. However, our ability to continue raising tuition is limited. The ability of parents to fund education has been growing at a slower rate than the growth rate of tuition and tuition has been growing at a faster rate than inflation. Endowment resources help relieve the university’s dependence on these diminishing tuition revenues.

In addition, a strong endowment enables the university to offer more scholarships and university-based financial aid, which in turn helps in the recruitment and retention of the most qualified students. A healthy endowment eases pressure on the university’s operating budget and means that Carnegie Mellon’s values and priorities, rather than external forces, influence university decisions to a greater degree.

Investment Strategy

Who manages the endowment?
The university’s Board of Trustees, through the Trustee Investment Committee, is responsible for the management and oversight of investments in the endowment. The Investment Committee sets asset allocation targets, selects investment managers to run portions of the endowment, and monitors their performance and practices. The university’s treasurer is charged with the day-to-day administration of the funds.

What is Carnegie Mellon’s investment strategy?
The endowment is invested in a broad range of asset types. This diversification stabilizes the endowment’s performance and enables Carnegie Mellon to maintain a high allocation to asset types (equities) with high expected returns. Returns of different asset types are not always closely correlated with one another because markets are influenced by different economic factors. Strong performance in some markets often helps to offset weakness in other markets. The limited degree of performance correlation among markets stabilizes the overall return of the endowment.

How does market volatility affect Carnegie Mellon’s payout?
Carnegie Mellon invests for the long term and protects the budget from year-to-year volatility in stocks and other financial markets. It does so in several ways. First, the university manages risk by diversifying investments. Second, Carnegie Mellon applies a “smoothing” formula to the endowment payout, which factors in a rolling average of the endowment's ending per-share market value for the previous three years. This policy helps to shield the operating budget from the full impact of market fluctuations by moderating the year-to-year variability of the endowment's distributions.

Who are the university's investment advisors and how are they selected?
Carnegie Mellon retains independent professional money managers for the different asset classes. These asset classes include equities, fixed income, private equities, venture capital, and hedge funds, as selected by the Treasurer and approved by the Trustee Investment Committee.

Balancing the Budget

What steps does Carnegie Mellon take to balance its budget?
Carnegie Mellon runs a highly productive, highly efficient "innovation engine." The university is valued as a strong performer, but it operates with very little financial margin. Carnegie Mellon's tradition of operation is a composite of lean administration, entrepreneurial faculty and researchers, and strategic use of resources to leverage strengths—minimizing new expenditures while producing maximum returns.

Spending

What is Carnegie Mellon's spending policy?
Carnegie Mellon's target policy distribution rate is 5.0% of a three-year moving average of the endowment's per-share market value. A three-year moving average provides greater predictability in budgeting by smoothing the impact on distributions of year-to-year market fluctuations.

What considerations does Carnegie Mellon take into account with regard to spending from endowment funds?
Endowment funds are crucial elements in any financial plan for supporting both present and future generations of students and faculty at the university. Like its peer institutions, Carnegie Mellon tries to balance the need for current revenue—to cover the cost of today’s program needs—with the need for appreciation in the fund’s principal value to protect and enhance the fund’s future purchasing power.

Endowment funds support program costs of many Carnegie Mellon activities. Donor intent determines what activities an endowment fund will support.

What types of costs are supported by endowed funds?
Distributions from endowment funds support both direct program costs and associated program costs. Direct program costs are individually identifiable cost items that under Carnegie Mellon’s internal accounting procedures are accounted for separately and charged to the particular program involved. One example would be salary and fringe benefit costs for a faculty member holding an endowed chair. Another example would be the books purchased with a library endowment.

Associated program costs are the commitments of institutional resources such as the computing, library, office space, utilities, and departmental administrative support that are essential to the operations of the particular programs involved. These costs are not charged directly to the individual programs under Carnegie Mellon’s internal accounting procedures due to the excessive cost in time and labor that would be involved in doing so.

Gift Opportunities

How is an endowed fund established?
The gift amount required to establish a named endowed fund may vary depending on the fund’s purpose, but our current policy requires a minimum of $50,000 to establish an endowed fund. A named fund will be established when the initial payment is received, but the fund does not become permanently endowed until $50,000 is in the fund principal, either as a result of payments into the fund or, in a few cases, as a result of appreciation within the fund.

Exceptions to this policy are: a Student Undergraduate Research Grant (SURG) can be established with a gift of $10,000, and an endowed library fund can be established with a gift of $25,000.

Endowed funds are established in accordance with the donor’s interests and may be created in a specific discipline, in a specific department, or for use within a college or across the university. The fund generally carries the name of the person or organization that the donor wishes to honor.

What are some examples of opportunities to endow educational activities and programs at Carnegie Mellon?
In addition to scholarships and professorships, Carnegie Mellon offers many other endowment opportunities including endowed book funds, graduate fellowships, building maintenance funds, research initiatives, and lecture series. The Advancement staff works closely with prospective donors to help them establish an endowed fund that meets the mutual interests and goals of the donor and the university.

What are some examples of other ways to make a gift to the endowment?
While named endowed funds require minimum amounts, gifts of any amount may be added to an existing endowed fund or to the university's unrestricted endowment.

There are many ways to make a gift to Carnegie Mellon’s endowment. Gift opportunities fall into several basic categories: outright gifts, which are available for immediate investment by the university; life income gifts, in which the university receives money immediately while providing the donor or someone they designate with an income for life; or bequests, in which the university receives the gift upon the death of the donor. Examples of outright gifts include gifts of cash, stocks, bonds, and real estate. Life income gifts include charitable gift annuities, annuity trusts and unitrusts, and membership in a pooled income fund.

How do donors benefit from the endowment?
Alumni, parents, and friends of Carnegie Mellon who make endowment gifts are attracted to the opportunity to ensure that the institution, or a particular program or activity, will exist in perpetuity. Many Carnegie Mellon alumni, parents, and friends have associated their own names with gifts to Carnegie Mellon’s endowment and receive recognition inside and outside the university community for their gifts. Behind each endowment gift is a personal motivation—to repay a debt of gratitude for the donor's own education, to honor a loved one, and/or to make a positive impact on society.


Contact Information

Inquiries concerning management of the university's investments may be directed to:

Debbie Meyers
Director of Donor Services
Carnegie Mellon University
6 PPG Place, 14th Floor
Pittsburgh, PA 15222
412-268-6585
dkmeyers@andrew.cmu.edu

Deborah Moon
Vice President and Chief Financial Officer
Carnegie Mellon University
Warner Hall
5000 Forbes Avenue
Pittsburgh, PA 15213

For all other inquiries, please call 412-268-5138 and you will be directed to the appropriate person.