Fall 2014 correspondence and updates

UMass endowment story off mark

CommonWealth Magazine was correct in pointing out that the University of Massachusetts endowment has grown dramatically, from $38.5 million in 1995 to today’s nearly $750 million. But the article’s premise that the university’s investment strategy has been overly conservative in today’s financial markets defies the facts and misses what is truly a success story.

Despite significant volatility in the financial markets, UMass achieved an average gain of 3.9 percent for the five-year period ending in 2013, virtually matching the national average of 4 percent gain. Contrary to CommonWealth’s story, in each of those years except 2011 and 2013, the university’s endowment return was actually above — not below — the national average for all endowments.

The article also erroneously states that UMass has kept the endowment out of such investments as emerging stocks and hedge funds (and CommonWealth’s own chart accompanying the article actually shows that the UMass endowment had 26 percent of its assets invested in alternative investments, which are largely hedge fund holdings). The UMass endowment also had 4.2 percent of its assets in emerging market equities as of June 30, 2013.

We look forward to the investment opportunities afforded by the growth in our endowment, particularly with respect to top-tier private equity and venture capital funds for which larger sums are required. The university and the UMass Foundation remain committed to sound investment management practices that balance the need and desire for a significant return on investment against the equally important need to protect endowment gifts and the financial future of the institution.

To do otherwise would be a dereliction of our fiduciary and moral responsibility to our donors, students, and faculty — as well as the entire Commonwealth, which relies on this premier public research university to produce scientific discovery and innovation while providing an affordable, high quality education.

Charles J. Pagnam
Executive vice president
UMass Foundation
Boston

Jack Sullivan responds

The wording of my story should have been more accurate. I reported that between 2009 and 2013, UMass had only one year — 2009 — where its investment performance exceeded the national average for all endowments and for endowments of similar size. Pagnam is correct that the performance of the UMass endowment exceeded the national average in 2009, 2010, and 2012, but it exceeded endowments of similar size only in 2009.

Pagnam cites the school’s five-year average of 3.9 percent as “virtually matching” the national average, but he rounds the national average down from 4.2 to 4 percent. Each percentage point represents more than $6 million for an endowment of UMass’s size, so a difference of 0.3 represents a difference of close to $2 million.

Contrary to Pagnam’s assertion that the story “erroneously states” the fund did not have investments in emerging markets and hedge funds, the story and the accompanying charts both state that it does. The point of the story is that UMass invested in those areas, just at a much smaller and slower rate than its cohorts.

UPDATE

PAYING TEACHERS NOT TO TEACH

The Boston Public School system is paying 115 tenured teachers not to teach this year, a roughly $10.1 million cost that officials hope will improve the quality of teaching in the city’s schools.

The numbers are in line with estimates made in a feature article this summer on the system’s new open hiring process, which sidesteps seniority and tenure rules and allows principals to hire whomever they want to fill open positions (“The hiring man,” Summer ’14).

Previously, hiring rules required that teaching spots be found for every tenured teacher, a process that often required principals to take tenured teachers they didn’t want.

Officials said the so-called excess teachers left over at the end of the hiring process will work as assistants to lead teachers. Most of them worked in elementary education and were assigned to 33 schools in groups of three.