Financial Plan - Cornell University Division of Budget & Planning

U.S. Senate Response (continued)from the pooled investment account based on monthly unitmarket values. At June 30, 2007, the fair value per unit was$66.62. Payout is also managed on a unit basis. Cornell’strustees declare a payout per share in advance of the start ofthe fiscal year, and each fund receives programmatic payoutbased on the number of unit shares that it “owns” in the pool.(See below for a description of the payout-setting process.)The LTIP’s current payout policy, which was enacted by thetrustees in 1988-89 and revised several times through to1998-99, has the following provisions:• Payout is set in advance by the trustees as part of the budgetprocess. Total payout for the LTIP consists of programmaticpayout plus payout for the general and stewardshipcosts of the programs supported by the LTIP.• The proposed programmatic payout for a coming fiscal yearis normally 5% greater than the prior fiscal year as long asthat increase allows programmatic payout to remain withina defined target range of 4.4% of a twelve-quarter rollingaverage of LTIP unit share values, plus or minus 75 basispoints. The additional payout for general and stewardshipcosts represents 0.46% of that rolling average. As the rollingaverage of unit share values extends through the end ofthe prior fiscal year and the trustees normally declare theprogrammatic payout in January, the final two quarters ofthe average are estimated.• In lieu of the normal 5% annual increase in programmaticpayout, the trustees sometimes make step adjustments—both up and down, based on prior investment performanceand current market conditions—to maintain the totalpayout within its target boundaries. As the general andstewardship cost component of payout is a fixed fraction ofprogrammatic payout, it rises and falls with any step adjustmentmade in programmatic payout.• Overall spending from the LTIP includes total payoutas well as internal investment management expenses andexternal management fees.The university’s investment strategy incorporates a diversifiedasset allocation approach and maintains, within definedlimits, exposure to the movements of the world equity, fixedincome, commodities, real estate, and private equity markets.Based on guidelines established by the Investment Committee,the university’s Investment Office directs the investmentof endowment and trust assets, certain working capital, andtemporarily invested expendable funds. The trustees have establishedshort- and long-term targets for various asset classes,delineating upper and lower ranges for each. The portfolio isrebalanced periodically to maintain asset classes within theselimits.The investment objective is to achieve a total return, net ofinvestment expenses, of at least 5% in excess of inflation, asmeasured by a rolling average of the Consumer Price Index.Achieving favorable returns enables the university to distributeincreasing amounts over time from its investments so thatpresent and future needs can be treated equitably in inflationadjustedterms.Reference: See page 42 of the Cornell University FinancialReport, 2006-07 for a description of the LTIP.(http://www.accounting.cornell.edu/CM_Images/Uploads/ACT/AnnualReport06-07.pdf)5c) What is the mission of your university’s endowment?Response:Building on the vision of Cornell University’s founder, EzraCornell, who aspired to build “an institution where any personcan find instruction in any study,” the general principleof Cornell’s endowment is to support those two fundamentalthemes: enabling access and providing a comprehensive rangeof academic offerings and activities.Endowments provide Cornell with a stable flow of operatingrevenues that funds core academic activities like instructionand research and allows the institution to admit and educatestudents from a wide variety of economic backgrounds.Endowed professorships, like the Frank H.T. Rhodes Professorshipof Humane Letters, permit the university to hire andretain excellent, world-class scholars. As a case in point, NobelLaureate Roald Hoffmann holds that professorship. ProfessorHoffmann has taught primarily undergraduates at Cornell, andalmost every year since 1966 he has taught first-year generalchemistry. Some undergraduate financial-aid endowments havespecial terms that allow the institution, within the framework ofneed-based aid, to recognize superior academic achievement. Forexample, the John McMullen Scholarship is awarded to studentswith potential for exceptional success at Cornell and in the fieldof engineering. The scholarship is named for John McMullen,who was the president of the Atlantic Gulf & Pacific DredgingCompany. Although not a Cornellian himself, on the advice ofa friend who was, McMullen bequeathed his estate to Cornell toprovide scholarships for engineering students. The first McMullenScholar entered Cornell in 1925. Receiving this honor placesstudents in a select group of individuals who received McMullensupport during their undergraduate years at Cornell.Cornell’s endowment is made up of approximately 6,800 separatefunds (as of December 31, 2007). Most have individualuses—some imposed by donor restrictions—that limit orprevent payout from being used in a fully fungible manner. Themost common restrictions are tied to the purpose of a fund. Afund may be limited for use by a specific college or departmentwithin Cornell or the donor agreement may provide that thepayout be reinvested as new principal when the purpose of theendowment gift cannot be executed (e.g., payment of salarythat cannot be made when an endowed professorship is vacant81