Endowment Growth ( in Millions) One source of the University of Virginia's extraordinary stability is its endowment, which consistently ranks among the five largest of public institutions and among the thirty largest of all colleges and universities in the nation. This year, the University's endowment reached $1.2 billion.

The endowment has enjoyed tremendous growth over the past two decades, increasing in value from $117.8 million in June 1979 to $1.2 billion as of June 30,1999. At this level, the endowment is among the five largest of public institutions and among the twenty-five largest of all colleges and universities in the nation. Over the past fiscal year, some $51.6 million was distributed from the endowment, accounting for 4% of the University's total budget.

The Finance Committee of the Board of Visitors, and in particular, the University of Virginia Investment Management Company (UVIMCO) subcommittee, is responsible for setting investment policy for the endowment. Much of the growth of the endowment over the past two decades is attributable to the board's decision in the early 1970s to commit a then unconventionally high percentage, 75 percent, of endowment assets to domestic equities with the remaining 25 percent allo cated to bonds. In the early 1980s, the board began to diversify the equity allocation by including international equity, venture capital, and real estate.

During this fiscal year, the UVIMCO board increased the targeted equity allocation from 75 percent to 80 percent of endowment assets. Within equities, the board increased the targeted allocation to those areas that are more inefficient and less liquid in order to capture the return premium offered. The target to traditional domestic equities was reduced to 20 percent of endowment assets. The remaining 60 percent of the equity allocation is targeted as follows: 12.5 percent to international equities (with an emphasis on the less efficient markets of the developing countries); 22.5 percent to the less liquid private equity markets (which include investments with established private companies, new ventures, and real estate); and 25 percent to hedge funds, a broad category that generally includes active managers that invest in the public domestic and international markets, and have the ability to invest in the less efficient short side of those markets as well as to use a limited amount of leverage.

Why would a prudent investor participate in less liquid, less efficient capital markets? Endowments are in an advantageous position, in that the investment time-horizon is very long and distribution requirements are both predictable and reasonable. A portion of the endowment can then be in the private markets, where transactions are less frequent, but where more attractive returns are offered to entice investors to forgo the liquidity of the public markets. In the United States, it is often argued that, publicly available information travels so quickly that all information is reæected in the price of a stock. In less efficient markets, where information æows more slowly or where complex or non-comparable accounting makes analysis difficult, mis-priced stocks are more easily exploited. The private investment portfolio was a significant contributor to the encowment's excellent performance over the past year.