How UT Shares Its Endowment

Shocked to hear that UT is one of the richest colleges in the country? We were, too. Get it right, Yahoo!—we share that money you assumed was all ours.

While scanning Facebook earlier this week, I was taken aback to read that The University of Texas is one of the “richest colleges in America,” according to a report on Yahoo! Finance. It was reported that “The University of Texas” has the largest endowment for a public school in the nation, and the third-largest overall.

After we contacted Yahoo! Finance’s content partner, TheStreet, it published a clarification. After all, the endowment is as large as reported, but it does not belong exclusively to The University of Texas at Austin. This is because of a principle we all learned in kindergarten: sharing.

The mistake made in this report is a frequent one that comes up based on the size of the University of Texas System Permanent University Fund, or PUF. The endowment’s $17 billion worth does place it right behind Harvard and Yale’s endowments, respectively, as the third-largest in the nation. But like many things, it is more complicated than that.

Here is how the PUF works: The PUF’s value comes primarily from about 2 million acres of oil and mineral producing land that was granted to the University of Texas over a number of years in the late 1800’s. Oil and minerals extracted from the land are sold, and that revenue is put in the PUF. The PUF is invested into market-based financial instruments, like bonds, commodities, and stocks.

Only the return on investment from the PUF is available to be spent annually. The principal of the PUF remains invested, and is managed by the University of Texas Investment Management Company. It is the annual return that is placed into the Available University Fund, or AUF. Part of this return is distributed to universities (yes, multiple universities), and some is reinvested to help grow the principal. The value of the annual payout depends on the overall health of the global financial markets, because the return on investment depends on market performance.

If UT-Austin received all of the money in the AUF annually, then Longhorns would indeed be reaping the benefits of having such a large endowment.

But remember the sharing. In reality, two different university systems and several University agencies share the AUF. This helps to educate more than 180,000 students, not just the 50,000 on the Forty Acres.

In 1931, several years after oil was found on the PUF lands, the Texas Legislature institutionalized that 2/3 of the AUF be granted to the University of Texas System, and the remaining 1/3 to the Texas A&M System in order to help both systems grow and meet the evolving needs of the state. Within the University of Texas System, UT Austin, according to Regent’s Rules, receives no less than 45 percent of the System’s share. So if you are doing the math, UT Austin gets about 45 percent of 2/3 of the PUF’s annual payout, so roughly 30 percent of the Available University Fund. For the 2011-2012 academic year, UT Austin received about $156 million recurring from the AUF, which made up about 9 percent of the overall budget.

We are exceedingly lucky to have the PUF and AUF to support higher education in Texas. But to automatically consider UT Austin one of the richest colleges in the country just because the PUF shares our name does not present an accurate picture of our financial situation.

The PUF payout is one small part of our complicated budget—a budget that is taking hard hits lately.

The PUF does not stop budget cuts from happening, nor does it secure enough financial aid for every student in need. Other entities, most importantly the State of Texas, need to step up to the plate and work with the University to master efficiency and excellence together.

The PUF and the AUF, with their complicated histories and Texas-sized payouts, need willing partners to make UT Austin be the best University it can be.

Photo by bengrey via Flickr Creative Commons.


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