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Opaque portfolio, lackluster returns: What can we learn about UF investments targeted by protests

An unidentified University of Florida campus police officer watches over about 50 pro-Palestinian protesters who demonstrated on campus Thursday, April 25, 2024, for a second consecutive day. There was no violence or police response – a contrast to what was happening at some other college campuses around the U.S.
Amanda Friedman
Fresh Take Florida
An unidentified University of Florida campus police officer watches over about 50 pro-Palestinian protesters who demonstrated on campus Thursday, April 25, 2024, for a second consecutive day. There was no violence or police response – a contrast to what was happening at some other college campuses around the U.S.

The University of Florida has the largest endowment of any university in the state and like elsewhere in the county, protesters are demanding divesture from companies doing business with Israel. While learning its investments is impossible, seeing its underwhelming investment returns isn’t.

Protesters on college campuses across the country are demanding schools divest from companies doing business with Israel because of its war against Hamas militants in Gaza. The students want to force their schools to sell stocks or bonds in defense contractors and artificial intelligence companies who profit from Israel’s war in Gaza.

At the University of Florida, the UF Divestment Coalition, which has held pro-Palestianian protests on campus, wants the school to release a decade’s worth of information about its investment portfolio. The group also wants students to have a say in future university investments.

Even though top college administrators and opponents focus on incendiary language and conduct of protestors, the demonstrators' chief demand brings attention to an often misunderstood and complex corner of college finance: their large endowments.

University endowments total tens of billions of dollars in Florida, alone. The money comes from donations and is used to support the education mission of the schools. It can be withdrawn for special items or to provide a financial cushion when other revenue is threatened.

“The thoughtful individuals and organizations who create endowments provide security and confidence for our students and faculty, now and in the future,” said a University of Florida Investment Corporation report in 2023.

UF has the largest endowment of any university in the state. Its $2.3 billion is three times the size of the next public university’s portfolio, Florida State. It's also considerably larger than the largest private university endowment in the state — University of Miami’s $1.4 billion endowment.

UF has the largest endowment of any university in the state.

UF’s endowment fund is actually thousands of funds pooled together and managed by its own investment group called the University of Florida Investment Corporation. Last year, the pooled money contributed over $100 million to the university for various purposes.

Investment managers aim to increase the size of the endowment pool with investment returns by at least 5% each year after considering inflation and expenses. That is a conservative target, and one the pool has, in fact, failed to keep pace within the past few years as inflation has jumped.

The pool’s investments rose 5.2% in fiscal year 2023after expenses and management fees. That return is about three percentage points less than its stated target.

“The Endowment’s long-term focus and significant allocation to private strategies which underperformed public equities in the most recent year drove relative performance,” said the group’s annual performance report.

In comparison, the S&P 500 rose by 16% over the same time period. The highest interest rate on a certificate of deposit at this time was around 4%.

But that underperformance hasn’t been a single year occurrence. Investment returns for UF’s endowment pool have underperformed its inflation-adjusted target over the past three, five and 10 years.

Keeping pace with or exceeding inflation means the dollars generated by the investment activities retain their purchasing power. Underperforming inflation means the investment dollars are less valuable.

The UF Investment Corporation did not respond to WLRN about its investments.

Israeli-based funds: Less than 1%

The investment corporation is not required to publicly share specific portfolio holdings. It operates with its own board of directors, which reports to the university’s Board of Trustees.

Since the university refuses to open up its portfolio to public view, it is impossible to know what, if any, Israeli-related investments the university has.

But the investment fund's documentation outlines that another benchmark is to measure performance against that of a mix of two indices — both of which have some direct Israeli exposure.

The MSCI All World Index is made up of over 2,500 publicly traded stocks from 47 different countries. As of the end of March, it included familiar names like Microsoft, Facebook parent company Meta and AI semiconductor firm Nvidia. Two-thirds of its money is in U.S. stocks. One quarter of one percent of its funds — or about $2.50 of every $1,000 are invested in Israeli-based firms.

The other fund UF’s investment corporation includes in this “investable alternative” is the Barclays Global Aggregate Bond Index. This index is made up of investment grade government, corporate and securitized bonds across more than two dozen countries. This includes IOUs in Israeli shekels.

This “investable alternative” mix also outperformed the UF endowment pool in the most recent fiscal year. In fact, this alternative rallied more than twice as much as the Gator endowment. This alternative also has performed better over the past 3-, 5- and 10-year time spans. And with less volatility, according to the investment group’s data.

While the UF endowment fund has returned 7.4% per year over the past 10 years, the S&P 500 has gained about 9.5% per year, adjusted for inflation.

READ MORE: A UF student journalist talks about covering pro-Palestinian protests on campus

If UF has investments in companies doing business with Israel or firms related to its war effort in Gaza, it is likely those investments would be publicly traded shares in a company or corporate bonds. The school’s investment group may also have invested in private firms through its private equity investment fund.

Divesting from firms involved in Israel’s economy would not be easy. For instance, the country’s flagship commercial airline, El Al, flies only Boeing planes. AT&T has a research center in Tel Aviv. The Israel Defense Force uses an armored bulldozer made by Caterpillar.

Fees and investments

The investment group is responsible for the investments for the primary recipient of money donated to UF — the nonprofit University of Florida Foundation.

But it is not the only UF entity receiving donations that are then managed by the investment corporation. Shands Teaching Hospital and Clinics and the university itself also have their endowments managed by the group. The University of Florida Athletic Association's management had an agreement with the investment corporation that ended in April 2023.

The university foundation paid the UF investment group $3.5 million in the last fiscal year, according to its audited financial statement. The group reported $6.3 million in management fees 2021 on its tax filing and its 2022 fiscal year financial statement. About 90% of that income was paid out in salaries to employees. The fees are based upon the value of the investments once a quarter and that value may be different than if the assets were publicly traded. Its fee revenue increased 10% in 2022. During that same fiscal year, the UF Endowment pool investment returns managed by the investment group fell by 6.6%.

President and Chief Investment Officer William Reeser’s total compensation was $1.7 million in 2021, according to theinvestment group’s IRS 990 filing.

So what does the investment corporation invest UF’s donor dollars in as it looks to generate returns for the university?

By far, most of the donations are invested in limited partnerships managed by the school’s investment corporation. A limited partnership is a business structure. A general partner manages the business for other owners.

One of the demands from UF Divest Coalition.
screenshot of Instagram post
One of the demands from UF Divest Coalition.

UF’s investment corporation lists seven limited partnerships on its 2022 tax form . At the end of the 2023 fiscal year, the University of Florida Foundation had $2.3 billion invested in Florida Long-term Pool Fund L.P. There is no public disclosure of what that fund is invested in. The valuation is set by the investment managers themselves and is not very timely.

“The June 30 valuations of the investments in the limited partnership are based upon the value determined by the partnership’s general partner as of March 31,” the foundation disclosed in its 2023 annual report.

The Florida Long-term Pool Fund is made up of several types of investments; those designed to be held for less than two years, global stocks and bonds, hedge strategies and private equity investments. The largest portion — 40% — is in global stocks.

Each of the limited partnership investment funds is incorporated in Delaware, which is the legal home to many corporations, limited liability companies and limited partnerships because of the state’s friendly corporate tax structure, privacy and specialized corporate legal system.

No public disclosure

Unlike a publicly traded mutual fund which is required to file a complete list of their holdings every quarter, there is no public disclosure of what these limited partnerships are invested in.

A 2023 law bans “social, political or ideological interests” from being used to make investment decisions with state money. It’s not clear if that would extend to money donated to universities. The directive was focused on the Florida Retirement System in staff analysis during that year’s legislative session. However, the law’s definition of a government entity includes state universities. Conservative Republicans pushed the “anti-ESG” laws to thwart socially and environmentally conscious investing. ESG stands for environmental, social and governance.

One UF organization does publish what companies it holds in its direct portfolio.

The UF Research Foundation owns stock in about 50 firms, according to its 2023 financial statement. The shares come from license or royalty agreements between the companies and the foundation. While the number of shares is disclosed, the value for most of the stock is not since many of the firms are privately owned. Several are biotech companies. The university’s investment corporation, though, manages the research foundation’s separate endowment, which receives royalties from Gatorade (first created by UF in the 1960s).

There is a labyrinth of relationships and investment vehicles for university endowment funds. It makes for an opaque environment for donors, regulators and the public to assess the inter-workings and decisions leading to the publicly available results.
Copyright 2024 WLRN 91.3 FM

In a journalism career covering news from high global finance to neighborhood infrastructure, Tom Hudson is the Vice President of News and Special Correspondent for WLRN. He hosts and produces the Sunshine Economy and anchors the Florida Roundup in addition to leading the organization's news engagement strategy.