The Endowment

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The Role of the Endowment

The fundamental purpose of the University’s endowed funds is to support the academic mission of the University by supplying a steady source of income to supplement the operating budget. For fiscal year 2021, the endowment funded 17 percent of the University’s operating budget.

Spending from the endowment is used primarily to fund academic programs, instruction and research, faculty salary support, student aid, library acquisitions, and maintenance of campus buildings and classrooms.

The University of Chicago’s endowment ended fiscal year 2021 with a market value of $11.0 billion, including $1.5 billion of Medical Center endowment and $111 million of Marine Biological Laboratory endowment. Ninety-eight percent of the endowment is invested in the Total Return Investment Pool (TRIP). Over the past 25 years, the endowment has grown from $1.7 billion to its current level of $11.0 billion, driven by strong investment returns, generous alumni support, and prudent spending (see figure 1).

Maintaining and growing the value of the endowment is critical to ensuring that the steady source of income the endowment provides will not be eroded. At the University of Chicago, this is accomplished through the implementation of a well-diversified portfolio and a balanced spending policy.​

Endowment Spending

The control of endowment spending is a responsibility vested in the trustees of the University. As part of an annual budget process, trustees are asked to approve a level of spending that is within the range of 4.5 to 5.5 percent of a 12-quarter average market value, lagged one year. The current spending rate is 5.5 percent. This range allows for a lower spending rate during periods of market appreciation and increased spending during periods of decline. The current spending rule, first implemented in fiscal year 2005, is designed to create balance between long-term asset preservation, prudent spending for current operations, and capital budget support. This balance protects the payout from sudden fluctuations or shocks in the financial markets.

TRIP Investment Policy

The mission of the University of Chicago’s Office of Investments and the Investment Committee of the Board of Trustees is to provide stewardship of the University’s investment assets. This includes managing the University’s endowment to best support the University’s academic and medical programs, and ensure that the endowment benefits current and future generations. The University’s endowment is largely invested in the Total Return Investment Pool (TRIP).

The investment objective of TRIP is to achieve a return consistent with a level of risk that is appropriate for the University and the Medical Center. The Office of Investments uses a holistic lens to design the investment strategy of TRIP. This approach considers the economic risks borne by the University, such as growth objectives and debt ratios, in selecting an appropriate level of risk for TRIP. The primary measure of risk in the portfolio is the Global Equity Factor (GEF), a metric similar in concept to beta. The Investment Committee has approved the Office of Investments’ recommendation of a policy portfolio with a long-term central tendency GEF of 0.90 for the University. TRIP’s GEF may vary within the policy range of 0.80 and 0.95.

The long-term strategic policy seeks to target the portfolio’s exposure to private assets of 40 percent in normal market environments. Private asset class exposure may vary widely depending on market conditions. Currently, the portfolio is below its private investment target.

TRIP invests in a broad array of assets, including global stocks, US Treasury bonds, real estate, natural resources, private equities, private debt, hedge funds, and portfolio protection (tail hedging) strategies. The Office of Investments achieves exposure to these categories by selecting and engaging external managers. The Office of Investments may also make direct investments and co-investments, and use exchange traded funds and derivatives to ensure adherence to investment policy and risk parameters. To maximize returns given these risk parameters, the Office of Investments recommends an annual investment plan of broad asset class ranges and a private investment commitment budget. The annual investment plan is an implementable policy statement of risk and liquidity targets. The Investment Committee of the Board of Trustees annually reviews and approves the investment policy statement (see table 1).

Investment Performance

For the fiscal year ended June 30, 2021, TRIP gained 37.6 percent on an unlagged basis and outperformed the market-based, policy-weighted strategic benchmark used by the University by 510 basis points (see figure 2). Recently, most peer endowments have moved to an unlagged performance reporting methodology, where accounting books are held open longer to include private investment valuations. Typically, these take 60 days after month end to report. On a lagged basis, TRIP gained 35.9 percent, outperforming the benchmark by 380 basis points.

TRIP outperformed its strategic benchmark substantially across all time horizons. This success has been driven by manager selection with a positive contribution from asset allocation decisions. On an unlagged basis, TRIP gained 9.1 percent annualized over the past 10 years.

The University and its trustees have selected an investment strategy that is consistent with its total enterprise, long-range planning strategy in pursuit of academic eminence.