Texas State University System
An Audit Report on Endowment Fund Investment Management at the Texas State University System
January 1999
Report Number 99-021
Overall Conclusion
The Texas State University System (System), its components, and the Angelo State University Carr Scholarship Foundation (Carr Foundation) need to improve the investment management of endowment and similar funds to protect their value. An investment strategy resulting in a low allocation to equities increases the risk that the earnings from these gifts and other assets will not keep pace with inflation. As a result, the value of scholarships these funds can support is likely to erode over time.
The System does not manage its $51.4 million combined endowment and similar funds like most endowment funds. The System's low allocation to equities (stocks) results in long-term investment returns that are likely to be far below that of average endowments.
Similarly, the $45 million Carr Foundation's allocation to equities and resulting long-term investment returns are significantly below the average of other endowment funds.
Key Facts and Findings
As of August 31, 1997, the System's equity allocation was 17 percent while the average small endowment fund's was 63 percent. We estimate that the System's combined endowment and similar fund investments underperformed the rate of return of the average endowment by 8 percentage points (11 percent versus 19 percent) for the year ended June 30, 1997. An 8 percentage point increase on the System's $51.4 million endowment and similar fund investments as of August 31, 1997, would have generated an additional $4.1 million.
The System should seriously consider pooling its universities' endowment and similar fund investments. Currently, each university manages its own endowment with little guidance from the System. By pooling investments, the System could (1) invest all the universities' funds consistently, (2) increase potential return, and (3) pay less in management cost per dollar invested.
As of March 31, 1998, the $45 million Carr Foundation's equity allocation was 11 percent while the median equity allocation was 64 percent for 209 endowments and foundations. As a result, the Carr Foundation's investments earned only 65 percent of the median annualized rate of return of those 209 funds (8.8 percent versus 13.6 percent) for the previous ten-year period.
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