What is Carolina’s endowment?
Nate Knuffman, the University’s chief financial officer, explains where the funds come from and where they go.
People in the Carolina community often have questions about the UNC-Chapel Hill endowment: Where do the funds come from? Where do they go? Who makes those decisions?
The Well sat down with Nate Knuffman, Carolina’s vice chancellor for finance and operations and chief financial officer, for a Q&A demystifying the UNC-Chapel Hill endowment and explaining how it works.
Can you explain exactly what UNC-Chapel Hill’s endowment is?
The endowment is a permanent investment fund built through donor generosity. While preserving the principal, the University draws from the fund’s investment annual earnings as a reliable revenue stream.
It’s important to note that a university endowment isn’t simply a large savings account to draw from at will. The endowment is a collection of donations that have been made to UNC-Chapel Hill to be permanently invested to support specific purposes or programs. Each donation is codified in a gift agreement, which is a legal contract, that designates the specific purpose to be supported. Universities must honor donor agreements that specify how their gifts can be used — whether that’s for scholarships or faculty positions, etc. Each donation becomes part of a complex financial ecosystem with its own set of rules and restrictions.
How does the endowment benefit UNC-Chapel Hill?
The endowment generates consistent revenue from its earnings while preserving the principal, enabling the University to invest in key priorities and navigate fluctuations in state funding, tuition and federal grants.
Another benefit of having the robust endowment that Carolina has is related to our bond rating, which is an evaluation of an institution’s overall credit quality and financial strength. Each of the three major rating agencies has awarded Carolina its top bond rating — the only university in the UNC System and one of, I think, seven universities nationwide. A bond rating of AAA helps the University secure lower interest rates when borrowing funds. Among one of the key high rating drivers was Carolina’s “sustainable” endowment distribution.
Who manages the endowment?
The UNC-Chapel Hill endowment is managed by UNC Management Company, an independent nonprofit organization providing investment management services to the University of North Carolina System, the system universities and their affiliated endowments and foundations. Although they are independent from UNC-Chapel Hill, our chancellor, our Board of Trustees chair and myself are all ex-officio members of the UNC Management board of directors.
Where do the endowment funds come from?
I’m glad you asked! I think there are folks who may not understand what funds are actually invested as part of our endowment. We do not invest state appropriations or tuition dollars. Our endowment and foundation funds consist solely of donor contributions.
What are the endowment funds used for?
This endowment helps support a number of programs, such as scholarships, fellowships, faculty positions, advising, research, arts and public service initiatives. More than 75% of our endowment funds support students and faculty.
How has the endowment grown/performed in the past year?
We have seen a market value increase on our endowment of over $3 billion over the last 10 years, and over that time period we were able to draw $2.1 billion in distributions from the endowment to support the University.
Our endowment distribution is over $250 million a year, which is more than the annual operating budget of UNC Kenan-Flagler Business School, just to give you a sense of its value.
Are there any other misconceptions around the endowment you’d like to address?
I would encourage anyone who is interested in learning more about our endowment to avail themselves of the resources that are publicly available. Annual reports are posted on the UNC Management Company’s website as Annual Report – Chapel Hill Investment Fund. UNC Management Company President and CEO Jon King regularly reports to the Board of Trustees in open meetings that are recorded and archived on the BOT website.
One misconception that I’d like to address is the idea that we can adjust specific investments as part of our portfolio. Modern endowment management operates through commingled funds rather than individual stock ownership. Just as an S&P 500 index fund investor can’t selectively exclude companies, we can’t cherry-pick investments within our pooled funds, which represent over 95% of our portfolio. While we understand specific investment concerns, our primary obligation is maximizing returns to support our institutional mission through scholarships, faculty positions and research — ultimately reducing pressure on taxpayers and tuition dollars.
