The University of Michigan’s endowment is weighing changes to the way it approves new investments and has taken other steps recommended in an external review this year by PwC.
Unlike many of its peers, the University of Michigan seeks board approval for its investments in a public session, which PwC said is not necessary, according to the school's August 2 announcement of its investment process review. Rick Fitzgerald, a spokesman for the University of Michigan, said Friday by phone that the endowment is considering executing investment decisions within already approved allocation ranges without first running them by the Board of Regents.
It's unusual for university endowments to disclose the results of an audit. Much of what PwC found was positive, with the endowment largely running according to its policies. One area that needed some adjustment was its allocation to fixed-income, which had fallen below the range allowed by the Board of Regents.
“The university, with rare exception, is functioning in accordance with a robust set of policies designed to assure responsible governance oversight of our investment activity,” University of Michigan's president Mark Schlissel said in the announcement. “But we also know we can continuously improve and will proceed quickly to implement the recommendations.”
Fixed-income investments made by the endowment are supposed to account for 10 percent to 35 percent of its portfolio, with a model allocation of 18 percent, according to a report of PwC’s review on the University of Michigan's website. However, in 2018, the allocation dropped to 6.5 percent.
“The allocation of fixed-income investments had recently fallen below the range that was previously designated by the Board of Regents, an issue previously addressed at the May board meeting,” Fitzgerald said in the university's announcement. “The board had been informed of the actual allocation.”
By October, the endowment expects to present allocation ranges for each asset class to its Board of Regents on at least an annual basis.
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The auditors also suggested that the endowment provide a specific time frame for when the documentation of due diligence with outside investment managers must be recorded in its research management system. PwC had found two instances in which the documentation had not been entered in a timely manner. The endowment said it has already implemented this change.
The university has made other changes suggested in the audit. Last month, the endowment implemented more formal protocols surrounding how it records investment commitments and how it handles travel and expense reimbursement.
“As stewards of the university’s assets, it is reassuring to know we have a solid operation, from front to back,” Katherine White, chair of the finance, audit and investments committee of the Board of Regents, said in the university's announcement of the review.