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Tuesday, October 26, 2021

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How does UR invest its endowment?

<p>The statue of philanthropist E. Claiborne Robins stands before Boatwright Memorial Library.</p>

The statue of philanthropist E. Claiborne Robins stands before Boatwright Memorial Library.

There is one figure that stands firm for the University of Richmond year after year: its endowment, which right now hovers just above $2.4 billion. For a school with approximately 3,000 undergraduate students and 1,000 graduate students, that number is pretty hefty.

To put things in perspective, the University of Virginia’s endowment per student is about $400,000, which is calculated based on its $9.6 billion endowment divided by its 23,852 student population, and VCU’s is approximately $88,000, or $2.04 billion divided by 27,211 students. 

UR's endowment per student is around $640,000. Other small liberal arts schools have similarly high endowments per student; Washington & Lee's comes out to around $750,000, based on its $1.68 billion endowment and 2,219 students.

Given this, it seems worthwhile to ask where the endowment is coming from.

Let’s start with the basics.

Robins’s Gift

In 1969, E. Claiborne Robins, a pharmaceutical executive and UR alumnus pledged a $50 million gift to the school. It was the largest donation to a U.S. university by a living benefactor at the time, according to the University of Richmond magazine. It served as the foundation on which UR has built its massive endowment.

Robins's legacy extends beyond his gift to UR. His pharmaceutical business, A.H. Robins Co., was forced into bankruptcy in 1985, following numerous lawsuits regarding the company's Dalkon Shield birth control device, which was taken off the market in 1974 at the request of the US Food and Drug Administration. The device has been blamed for infections, infertility and more than 20 deaths, according to The New York Times.

Although $50 million is a lot of money and was certainly a generous donation, it pales in comparison to the endowment UR has today. How has this investment grown by almost 5,000% in approximately 50 years?

Tory Sprehe, director of investor relations for UR's investment firm, Spider Management Company, which manages the endowment, has some answers.

“Prudent stewardship of [Robins’s gift] has allowed the university’s endowment to grow to the size that it is now,” Sprehe said. Additional large gifts from alumni have also played a role, she said.

But what does prudent stewardship actually entail?

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Long-Term Investing

First, prudent stewardship means focusing on long-term investments, which Spider Management is able to do because of UR’s interest in long-term returns, Sprehe said.

“It’s really a benefit to be able to make long-term investments and not have to try to follow short-term market moves and get wrapped up in market noise,” Sprehe said. 

This allows the fund to focus on strong, absolute returns over the course of several years, rather than on, say, beating the S&P 500, a stock market index measuring the performance of 500 of the largest publicly-traded companies in the U.S., every month.

With this investment strategy, Sprehe said, Spider Management helps UR protect itself from losses with safer investments.

So, a long-term mindset has helped UR generate massive returns in the long term. That makes a lot of sense.

But presumably, every university invests with a long-term mindset, right? It’s not as if they’re buying and selling Tesla stock to finance themselves. What else is contributing to the $2.5 billion sum?

Alternative Investments

Sprehe – and the Spider Management investment philosophy – also attributes part of the impressive return on investment to UR’s access to alternative investments, which are non-conventional financial assets. Some examples of conventional assets would be cash, stock and bonds.

Almost all of the endowment is invested through private equity asset managers outside of UR, Sprehe said, meaning Spider Management seldom directly invests the school’s assets. Rather, the fund seeks out managers and hands UR’s assets over to them to invest.

And because of Spider Management’s network and reputation, it has access to some of the most selective asset managers around – who other institutions might be stuck on a waiting list for, Sprehe said.

But these managers are not the only selective ones. Spider Management is pretty choosy as well.

There are three main things Spider Management looks for in an asset manager, said Jeff Hires, the company's director of public markets.

First: something that makes the manager unique, Hires said. What separates them from the pack? There are a lot of hedge funds out there trying to do the same thing, so Spider Management increasingly looks for managers with strategies that give them a sustainable competitive advantage, Hires said.

The second thing Spider Management looks for is an attractive opportunity, he said. Whether it is considering a venture capital manager in Silicon Valley or a leveraged buyout manager in China, the company wants to know if it is investing in an area that is advantageous for UR in the long term.

The third attribute is a little different from the other two. Because Spider Management works with managers for an average of seven years, it must make sure the manager will be a good personal fit for the company, Hires said.

Strong Partnerships with Managers

Hires explained that the relationship between Spider Management and its managers was not some emotionless transaction. The manager should care about Spider Management’s goal of providing for UR and its students.

In addition, managers should be accommodating partners, ready to pick up the phone and offer insight on any questions someone at Spider Management may have, Hires said. He described a recent phone call between him and a New York City hedge fund manager with whom he works. Hires was able to chat with the manager on a moment’s notice and pick his brain about the recent GameStop short squeeze controversy.

“In some ways, it’s kind of like a marriage,” Hires said.

Even when Spider Management does hire managers, however, UR's money is not simply handed off to them to do as they please.

“We spend all of our time evaluating and doing due diligence, assessing the performance of investment managers who have a specific expertise,” Sprehe said.

This means staying up to date with managers’ monthly and quarterly updates, listening to their reports on the portfolio and using software to analyze each manager’s holdings. Spider Management also makes sure these managers are sticking to their prescribed investment strategy – in other words, exercising the unique expertise for which the company hired them.

Sharing the Wealth

UR and Spider Management are fortunate that they have access to elite asset managers, and this fact is not lost on them.

In 2008, UR began allowing smaller non-profits to invest through Spider Management. Non-profits can now hand over assets to be invested in the same portfolio as UR’s.

In doing so, Spider Management offers the benefits of its scale, expertise and reputation to other universities, K-12 independent schools, museums and various community organizations, Sprehe said.

The offer is on the table for non-profits and non-profits only, she said. Spider Management does not invest for pensions, high net-worth individuals or any other profit-driven entity.

Spider Management was unique when it started doing this in 2008, said John Earl, finance professor and department chair. But since then, other institutions have begun employing similar systems, he said.

Earl mentioned some other distinctive things about Spider Management, noting that it provides internships to UR students every summer and hires one UR graduate each year.

Contact news writer Alan Clancy at alan.clancy@richmond.edu.

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