Are They Broke or Are They Rolling in Money? Financial Analysis of - PowerPoint PPT Presentation

Are They Broke or Are They Rolling in Money? Financial Analysis of the University of Chicago Howard Bunsis Professor of Accounting, Eastern Michigan University Chair, AAUP Collective Bargaining Congress March 2017 1

Roadmap Overall financial condition of the Who Works at university: Ratios, Reserves, and the University Investment Analysis of Chicago? Where is the money coming from? Revenue Analysis The environment for academic labor in the Trump administration Where is the money going? Expense and priority analysis 2

Overall financial condition of the university: Ratios, Reserves, and Investment Analysis 3

University of Chicago 2016 Balance Sheet Source: Audited Financial Statements (MBL = Marine Biological Laboratory) Total Assets Total Liabilities Total Net Assets 16 14 12 10 8 6 4 2 0 University Medical MBL Total UC Center In Billions of Medical Dollars University Center MBL Total UC Total Assets 11.12 2.70 0.21 14.03 Total Liabilities 5.16 1.39 0.04 6.59 Total Net Assets 5.96 1.32 0.17 7.44 4

The University and the Med Center are One Source: Audited Financial Statements • The University appoints the Medical Center’s Board of Trustees, designates the Chairman of its Board of Trustees, and approves its President • The President of the Medical Center serves as its senior executive officer, reporting to the Dean of the University’s Biological Sciences Division and Executive Vice President for Medical Affairs, and to the Medical Center Board of Trustees. • The Medical Center requires approval of the University for certain actions, including incurring additional long-term debt. • The University gives the Medical Center the right to use and operate certain facilities • Agreement runs through 2026 with automatic 10-year renewal 5

The University Has Control Over Other Entities • National Opinion Research Center (NORC) o Majority of the NORC board are faculty members or officers of the University, but separate accounting because UC does not have both control and an economic interest o This separate non-profit had calendar 2015 revenue of $179 million • Arrangements with the US Dept of Energy (DOE): o UChicago Argonne operates Argonne National Laboratory (ANL) under a contract with DOE. UC gets fees to manage o The University operates Fermi Research Alliance (FRA) lab on behalf of the Dept. of Energy. UC gets fees o Total dollars flowing are about $1.2 billion for ANL and FRA. These dollars are NOT Included in the UC audited financial statements 6

Breakdown of 2016 Assets Source: Audited Financial Statements 10% Investments 33% Capital Assets 57% Other Assets In Billions 2016 Investments 8.0 Capital Assets 4.7 Other Assets 1.4 Total Assets 14.0 7

Balance Sheet Over Time, in Billions Source: Audited Financial Statements Total Assets Total Liabilities Total Net Assets 16 14 12 10 8 6 4 2 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 8

Assets Over Time – A Building Spree Source: Audited Financial Statements 2008 2009 2010 2011 2012 2013 2014 2015 2016 10 9 8 7 6 5 4 3 2 1 0 Investments Capital Assets Other Assets 9

Investments Over Time Source: Audited Financial Statements 2008 2009 2010 2011 2012 2013 2014 2015 2016 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 University Med School MBL Total Internally Endowment Endowment Endowment Endowment Generated Investments 10

Where is the Money Invested? Mostly the Riskiest Securities Source: Audited Financial Statements Level 3 (riskiest) Level 2 Level 1 100% 80% 60% 40% 74% 71% 70% 66% 62% 62% 57% 54% 20% 0% 2009 2010 2011 2012 2013 2014 2015 2016 In Thousands 2009 2010 2011 2012 2013 2014 2015 2016 Level 1 1,522,146 1,790,992 2,429,735 2,429,743 2,755,480 2,901,238 2,302,775 1,927,566 Level 2 223,764 441,823 421,947 421,947 567,314 884,158 134,893 120,813 Level 3 (riskiest) 3,981,948 4,249,944 4,629,044 4,629,024 4,364,090 4,446,654 5,927,417 5,951,144 Total Investments 5,727,858 6,482,759 7,480,726 7,480,714 7,686,884 8,232,050 8,365,085 7,999,523 11

Specifics on 2016 Portfolio Source: Audited Financial Statements In Thousands 2016 The items highlighted in yellow • Cash equivalents 233,304 are either completely level 3 or Equities (mostly International) 1,774,567 Private debt 358,522 mostly level 3 investments Private equity: The administration feels good • U.S. Venture Capital 375,962 about itself with so much U.S. Corporate Finance 311,726 invested in the riskiest class of International 401,184 securities Real estate 485,153 • In addition, the university is Natural resources 459,791 involved in other ventures: Absolute return: “The University has made Equity-Oriented 768,992 investments in various long- Global Macro 511,965 Multi-Strategy 580,936 lived partnerships and, in Credit-Oriented 365,223 other cases, has entered into Protection-oriented 140,332 contractual agreements that Fixed income: may limit its ability to initiate U.S. Treasuries 309,290 redemptions due to notice Other 665,928 periods, lock-ups, and gates.” Funds in Trust 256,648 Total 7,999,523 12

Total Endowments: $7 Billion in Endowments and $8 Billion in Total Investments Source: Audited Financial Statements Internally Generated University Med School MBL Total Total In Thousands Endowment Endowment Endowment Endowment Investments Investments 2008 5,933,761 763,872 0 6,697,633 478,814 7,176,447 2009 4,535,634 586,219 0 5,121,853 606,005 5,727,858 2010 4,904,717 760,971 0 5,665,688 817,071 6,482,759 2011 5,691,013 884,113 0 6,575,126 905,588 7,480,714 2012 5,701,419 869,456 0 6,570,875 870,009 7,440,884 2013 5,886,968 782,006 0 6,668,974 1,017,910 7,686,884 2014 6,460,254 1,004,246 79,035 7,543,535 767,550 8,232,050 2015 6,461,809 996,139 82,012 7,539,960 907,137 8,365,085 2016 6,045,003 879,940 76,263 7,001,206 1,074,580 7,999,523 13

University-Only Endowment Over Time Source: Audited Financial Statements Unrealized Dividend / and realized Endowment, Interest gains Other Endowment, Start Income (losses) Payout Gifts Changes End 2008 5,832,226 82,843 101,551 (220,055) 86,317 50,879 5,933,761 2009 5,933,761 36,147 (1,252,410) (292,079) 53,902 56,313 4,535,634 (315,589) (81,564) 2010 4,535,634 52,034 632,480 81,722 4,904,717 (341,860) 2011 4,904,717 58,452 936,964 88,048 44,692 5,691,013 (333,014) 2012 5,691,013 78,330 170,574 59,076 35,440 5,701,419 (328,734) 2013 5,701,419 93,045 289,228 70,668 61,342 5,886,968 (346,307) 2014 5,886,968 100,809 666,055 99,128 53,601 6,460,254 (391,435) 2015 6,460,254 74,054 160,816 94,642 63,478 6,461,809 (415,371) 2016 6,461,809 61,538 (213,802) 114,495 36,334 6,045,003 The payout is between 4.5% and 5.5% of a 12-quarter moving average of • the fair value of endowment investments lagged by one year • The payout percentage was 5.5% for each of the last six years 14

Annual Rate of Return for UC Endowment vs. the Annual Return of the S&P 500 UC wins in 2008 to 2010; S&P wins from 2011 to 2016 UC Endowment Rate of Return S&P 500 Rate of Return 40% 30% 20% 10% 0% -10% -20% -30% -40% 2008 2009 2010 2011 2012 2013 2014 2015 2016 15

Long Term Rates of Return: UC Endowment vs. the S&P 500 UC Endowment Rate of Return S&P 500 Rate of Return 59% 60% 50% 40% 36% 40% 26% 30% 20% 11% 10% 0% -10% -20% -12% -30% 2008 to 2012 2012 to 2016 2008 to 2016 16

Largest 20 University Endowments, 2016 UC Was Last in the Change from 2015 to 2016 Source: Chronicle of Higher Education INSTITUTION ENDOWMENT % Change 2015 to 2016 -5.20% Harvard University $34,541,893,000 -0.60% Yale University $25,408,600,000 0.50% University of Texas system $24,203,213,000 0.80% Stanford University $22,398,130,000 -2.50% Princeton University $22,152,580,000 -2.20% Massachusetts Institute of Technology $13,181,515,000 5.70% University of Pennsylvania $10,715,364,000 0.60% Texas A&M University system office $10,539,526,000 -2.10% University of Michigan at Ann Arbor $9,743,461,000 -5.30% Northwestern University $9,648,497,000 -6.20% Columbia University $9,041,027,000 -2.30% University of Notre Dame $8,374,083,000 4.30% University of California system office $8,341,073,000 -7.30% University of Chicago $7,001,204,000 -6.30% Duke University $6,839,780,000 -5.20% Washington University in St. Louis $6,461,717,000 -4.20% Emory University $6,401,650,000 -5.30% University of Virginia $5,852,309,000 -4.60% Cornell University $5,757,722,000 -4.20% Rice University $5,324,289,000 UC Rank (of 20) 14 20 -2.33% Average $12,890,864,684 17

Conclusions from Endowment Data • Very risky portfolio • Solid fund raising • In 2016, the endowments spun off $466 million per year to help cover almost $4 billion in expenses • The returns have below the S&P 500 for the last several years – Is all this high finance (risky portfolio) really worth it? • There is over $1 billion of investments not related to the endowment • One can ask: Why is there $7 billion in an endowments? • Is it for a rainy day? • Should it cover more the expenses? • Should more go to employee compensation, especially those who are lower paid? • Should tuition be lower? 18