With a 40.6 percent return on endowment investments last year, Tennessee Tech reported a higher return than the average personal or business investor experienced last year when the Standard and Poor’s composite average was 26.38 percent.

For the calendar year 2003, we more than doubled the rate of most private and state universities in Tennessee. During the same time period, Vanderbilt reported a 19.3 percent gain while the University of Tennessee System showed a 20 percent gain.

“We look at investing as a way to practice good stewardship,” says Paul Isbell, vice president for University Advancement. “Our only incentive is to see that the university and our students benefit from the investments we make.”

Bruce Silver of New York City’s Silver Capital Management, the university’s first and only money manager outside the institution, manages the portfolio that includes bonds, fixed investments and securities.

“We are very risk-averse and emphasize long-term investment, not trading,” says Silver. “For more than three decades we’ve analyzed companies’ financial statements with great care to ensure we invest in companies with low-risk profiles.”

Tennessee Tech’s endowments are the only higher education accounts that Silver Capital Management serves. Isbell credits Silver, who was selected by representatives of local financial institutions and university officials, with meeting the university’s desire to invest conservatively and responsibly.

“Every penny our donors contribute to endowments goes into these professionally managed accounts,” says Isbell. “Because our conservative philosophy matches our management company’s strengths, when the market is bad, we tend to suffer less than everyone else, and when it picks up, we’re well situated to take advantage of it.”

University endowments are created to ensure money is perpetually available for the scholarships they support. When a principal sum of money — for example, $10,000 — is donated for an endowment, that money is invested and only a portion of the return is actually spent on the scholarship. The $10,000, plus a portion of the earnings, remains untouched to make sure there is money available during ups and downs in the market.

When donors contribute to one of our foundations, all funds are pooled and then turned over to Silver. He handles both fixed and securities investments. Of the $35 million in total endowments now held by the university, about $28 million is managed by Silver. The rest is divided among Chairs of Excellence investments with the state and in the local government investment pool.

Most of the funds the university has invested are for student scholarships and programs and not for bricks-and-mortar projects, Isbell says.

“We’re obviously pleased to be doing so well, because that in turn allows us to help more students,” he says. “And we still have so many students with needs.”

Many universities choose to hire administrators to manage their endowment investments, rewarding them with a portion of the profits. For example, one private university in Tennessee recently paid its treasurer more than $1.5 million in annual salary based on investment performance.

But at Tennessee Tech, a public institution, no administrator gains financially from the process. This encourages the risk-averse strategies that have proven profitable.
Over the past five years, our average rate of return has outpaced the returns reported by the state’s higher education institutions.

“Although our returns follow the ups and downs of the market, we were protected from large losses during downturns due to our conservative investment philosophy,” says Isbell.