The Growth and Income Pool produced a total return of .90 percent for 2004’s second quarter, compared with a 13.51 percent total return for the second quarter of 2003.

This “softer” second quarter was impacted by fears of more conflict in the Middle East, rising crude oil prices and consumer anxiety.

The long-term focus of the UNT Foundation’s portfolios anticipates fluctuations, both up and down. The Foundation maintains that careful diversification of asset classes remains the most appropriate response to shortterm changes in value.

U.S. Trust reported in June that “… a subtle shift in the language of the Federal Reserve’s most recent policy statement rocked global markets in early May. Although the central bank held the federal funds rate at 1 percent, the statement accompanying this decision hinted at a shift in monetary policy from accommodative to neutral.”

Bond market performance fell accordingly. Only recently, that rate was adjusted upward to 1.75 percent.

As of June 30, UNT Foundation’s total assets were $48 million, as compared to $37 million in the previous year’s period.

Generational neutrality model key to endowment health

Foundation strives for balanced earning, outflow

To assure that an endowment continues to benefit students from one generation to the next, the UNT Foundation’s board of directors uses a long-term, systematic method of managing its endowment investment and distribution policies.

The board strives to balance investment returns, distributions and the effects of inflation to keep each endowment productive, and to keep distributions steady. This cyclical balance utilizes what is called “generational neutrality.”

Imagine three generations of UNT students from the same family. Mary was in the class of 1985. Her son, Bob, is in the class of 2005. Mary’s granddaughter, Julie, will be part of the class of 2035. Now, assume that each of them receives a scholarship from the same permanently endowed fund. The goal of using generational neutrality management is to assure that each of them receives a scholarship of equal value from that endowment, adjusted for inflation.

To achieve this, over the long term each fund should grow faster than inflation from year to year, so that it will show gain after distributions.

Management of each permanent endowment requires balancing current needs for distributions with future generations’ distribution needs. While the first need is highly visible and understandable each year, the second is also significant, as permanent endowments are a perpetual obligation to the donors, beneficiaries and citizens of Texas.

Today’s unusually high demand for funds at UNT is fueled by a collision of explosive enrollment growth with a period of reductions in state funding for operations, student aid, construction and research. The situation is further complicated by a slow recovery from a record three-year loss in the markets. Negative market performance eroded reserves in older funds and put newer funds in a deficit.

A volatile economy is affecting endowment performances nationwide. In its May 28 edition, The Chronicle of Higher Education reports that investment experts are advising colleges to keep as much money in their endowments as possible — which means distributing less. The experts claim that doing so is the best way to achieve “intergenerational equity.”

One professor of economics in New York, in cautioning against this approach, underscores the delicate balance between today’s needs and tomorrow’s: “If the endowment shrinks, you’re being unjust to the future, but if it grows, you’re being unjust to the present,” Perry G. Mehrling told the Chronicle.

Unlike some institutions, the UNT Foundation has no reserve of unrestricted funds to which it can turn when investment income is inadequate. This makes the essential component of achieving generational neutrality — balance — even more important.

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Website updated: October 12, 2004. Website comments or corrections: rsimmans@unt.edu