Feature: The Impact of Endowment: Why Should You Care?

            As MSU’s capital campaign surpasses its goal, the focus now shifts to raising endowments.

            What’s the first thing you think of when you hear the word endowment?  Is it a word you’ve never really thought about? 

            For those not in the accounting or stock brokering professions, does it bring to mind a tedious list of investment-related words?  It certainly doesn’t conjure up an image of excitement and the thrill of quick, big changes, does it?  But perhaps both of these notions are a bit correct.  

            In a university setting, endowment is a term referring not only to the way money is invested but the way the investment income is used as well.  And the changes brought by endowments are often not quick.  In fact, when investing, patience can be a virtue.  Change, however, and all positive words that can be associated with it—enhancements, improvements, transformation, growth—is the heart and soul of why endowments are important to a university.  They can take time, but the payoff is phenomenal.

            Michigan State University has an endowment. Maybe this is common knowledge to you, but maybe it’s a thought that never crossed your mind.  So before we get into any more detail about endowments, let’s take a look at a simple illustration of the difference between a university fund that is endowed versus a fund that is expendable:

• Endowed funds differ from others in that the total amount of the gift is invested. Each year, only a portion of the invested income earned is spent while the remainder adds to principal growth.  In this respect, an endowment is a perpetual gift. 
• Expendable funds may also have rules that apply to how they are utilized, but once the original money that created the fund is exhausted, the fund no longer lives to serve its original purpose unless more money is given from an outside source.
• This is the primary difference between a fund that is expendable and a fund that is endowed.  Both are valuable and needed at a university, but endowments aim to replenish themselves.

            Now, this is certainly not to say that there is something deficient about expendable funds.  Often there is an immediate need for cash to fund a particular endeavor, and expendable funds make that money available right away.  The key to endowments, however, is a word right near the end of that first bullet point above: perpetual. 

            When some of the interest earned from the investment the university makes with a contribution to an endowed fund is added back to the original amount of the gift, there will be more money in the fund that will earn interest in year two, and so on.  (It’s sort of like that old shampoo commercial, except it would go something like – and their dollars joined the original dollars, and so on, and so on, and so on.)

            So why is this an important topic for Michigan State University right now? 

            Another item you may have heard recently is that the university reached it’s goal for The Campaign for MSU of $1.2 billion—and a year ahead of schedule as well.  This is a tremendous success story, especially considering that the only other university-wide campaign in MSU’s history peaked at $217 million.  Both campaigns owe everything to the incredibly generous alumni of MSU and those corporations, foundations and other individuals who believe so strongly in its mission and ability.

           Billy Rose, an American theatrical producer and lyricist, once said, “Never invest your money in anything that eats or needs repairing.”  Well, there’s always something to repair at a university, and just ask our on campus cafeterias if MSU students can eat.  Yet thousands of people and organizations thankfully never took Mr. Rose’s advice—and the payoff has been fantastic.

            Take for example renowned musicians and MSU faculty members Walter and Elsa Verdehr who are among that thankfully growing list of donors who value the benefits of earmarking their gifts for endowment. 

            Walter, professor of violin, and Elsa, professor of clarinet, have been on the faculty of the School of Music since 1968 and 1962, respectively. They married in 1971 and established the unique Verdehr Trio in 1972 as a way to travel and perform together.  There was a lack of music for the violin-clarinet-piano combination at the time, so the Verdehrs took matters into their own hands by commissioning works to expand the repertoire for this unique instrumentation.  They have now commissioned over 200 new works for this combination, many with the help of MSU, have traveled worldwide and recorded twenty compact discs presenting this literature.

            During The Campaign for MSU, The Verdehrs’ established a gift from their estate which is directed primarily to creating endowed named fellowships in violin and clarinet.  The MSU School of Music can now show promising young musicians that there is support here for people specializing in those instruments.

            Even though the primary benefit will come in the form of well-funded fellowships years from now, it immediately becomes an important recruit­ment tool to ensure these areas continue to attract the most musically talented graduate students.

            “We have watched the astounding growth of MSU over the 40 years we have both taught here and have been very pleased to see the institution develop in the ways it has,” Elsa said. “It makes us very proud to be a part of this great university and we wish to show this in a tangible way, one that will benefit future generations of students and teachers.”

            The future is the key, along with stability.  How do generous donors like the Verdehrs know that their gift, whether cash now or a planned estate gift later, will be there for its intended purpose?  One need only glance at MSU’s track record in the investment department to be assured.

            Michigan State University’s investment performance continues to be superior over the past decade.  The National Association of College and University Business Officers (NACUBO) annually surveys its member institutions on investment pool returns.  Results from the NACUBO Endowment Study for the ten years ending June 30, 2004 placed MSU’s average annual return of 13.2% at 23^rd of 443 institutions reporting.

            “Michigan State has proven for many years now that our method of investing—combining funds marked for endowment in our Common Investment Fund and then stewarding that with great care—has achieved excellent results,” said MSU President Lou Anna K. Simon.  “We have been ranked highly nationally for a number of years, and we have risen significantly in the ranks of the Big Ten since the start of our campaign, moving from last to the middle of the pack with a total endowment over $1.4 billion.”

            Impressive, for sure, but there is the need to raise some $80 million more to reach the goal set by the MSU Board of Trustees and campaign organizers.  It is a huge feat, but certainly not insurmountable considering the gains generous donors have helped MSU make to date.  The hope for the future impact of endowments is tremendous, and President Simon pointed to a specific example.

            “When you take into consideration that Harvard University has had at least some of its private contributions managed as endowed funds since its inception in 1636, there is no wonder that they are so far ahead of the game with an endowment with an overall value of $29.2 billion as last reported,” she said. 

            “One of our earliest recorded endowed funds is from 1917, and our endowment total may seem small by comparison, but Harvard has been at it for nearly 300 years longer than we have.  Their endowment has grown so much over that period of time that they are now able to have over 30 percent of their operating budget paid for with endowment dollars.

            “We don’t need to compare ourselves to Harvard, because MSU has its own unique place in the world, ” President Simon continued, “but their example makes the significance of and potential of investing in endowed funds quite clear.”

            Clear indeed.  The Campaign for MSU has entered its final year.  To raise an additional $80 million for endowment would make it the most given for endowment in a single year in MSU’s history.  Hundreds if not thousands of scholarships, fellowships and funds for a variety of purposes are secured for the university’s future when gifts are made today.

            “Reaching our endowment goal would be quite an accomplishment,” President Simon said, “but I think Spartans are up to the challenge. It is a great way to link your legacy with our future, forever.”

            Rick Seguin, ‘90, M.A. ‘99, is assistant director of marketing programs with University Development and sings professionally with a Lansing-based group called Any World.

MSU LEADERS SUPPORT ENDOWMENTS WITH THEIR OWN CONTRIBUTIONS

            Any time you’re thinking of investing time or money in a particular organization or activity, one of the telltale signs of the wisdom of that investment is whether or not the leaders of that organization invest in it themselves.  Michigan State is fortunate to have among its leaders very generous donors as well, and one need not look further than the president and provost.

            For years, Dr. Roy J. Simon, MSU’s Director of Telecommunication and Transportation Systems, and President Lou Anna K. Simon have given monetary gifts to the university.  They recently added a significant amount to their total contributions via a gift from their estate.  The gift elevated them to the newly formed Clifton R. Wharton Society, and all of it was directed toward endowed funds.  They will substantially add to an endowed fund they previously created that provides financial aid to students in the School of Music, especially those in the Jazz Studies Program; they will also add to another existing scholarship established by Roy Simon’s parents, Mary Jane and Theodore B. Simon, to support students majoring in business or engineering who also work at the Physical Plant Division; and the rest of their estate gift will establish a new scholarship in the School of Music, The Drs. Lou A. and Roy J. Simon Endowed Marching Band Scholarship.

            When Provost Kim A. Wilcox and his wife, Diane Del Buono, decided to make a financial commitment during The Campaign for MSU, they chose to apply their donation to a cause dear to their hearts: sustainable farming systems throughout the world.  They have entrusted MSU with a generous gift to fund an endowment that will enable the MSU Libraries to established a collection on this topic that will hopefully be used by scholars who will add to the body of research necessary to one day eradicate hunger through agricultural practices that are sustainable. 

            “A strong library is the core of a university, and Diane and I are proud to help strengthen MSU’s core,” Provost Wilcox said.  “It is even more satisfying to be able to also invest in one of our personal interests.”

            The gifts of these campus leaders show much faith in MSU’s ability to manage funds well and use the proceeds to accomplish great things.