University of Rochester

IRS Ruling Allows Trust Donors to Benefit from University of Rochester's Highly Diversified, High-Performing Endowment

December 6, 2007

The University of Rochester has recently joined a small group of leading universities—such as Harvard, Stanford, and Notre Dame—granted permission by the Internal Revenue Service to allow Charitable Remainder Trust donors to invest in their endowments. The University of Rochester's endowment is valued at more than $1.7 billion.

Endowment investments at the University of Rochester have historically performed well. The University's 10-year average annual return through June 30, 2007, was 10.8 percent vs. 7.4 percent for the benchmark (comprised of 60 percent Wilshire 5000, 20 percent Lehman Aggregate, and 20 percent EAFE—Europe, Australia, and Far East Index).

"I am very pleased we received a favorable, private letter IRS ruling as the result of a process we initiated," said Jack Kreckel, senior associate vice president in the University's Office of Trusts and Estates. "We want donors to be able to benefit from the investment expertise of our numerous endowment financial managers and the extensive diversification of our portfolio."

Although research universities are committed to teaching, discovery, and service to humanity—pursuits most often associated with the nonprofit sector—their endowments that support this work are sophisticated, high-performing financial organizations.

A recent Wall Street Journal article reported on the growing popularity of investing in University endowments, especially among retirees: "The charitable trust option allows donors to share in the returns earned by university endowments, which often have access to investments that are hard for individuals to hold on their own."

According to Kreckel, the University's endowment management is strong, utilizing a wealth of expertise to gain optimal results from a wide diversity of assets. The University employs more than 80 investment advisory firms to oversee its endowment. The investments are divided roughly between 60 percent traditionally traded assets, such as stocks and bonds, and 40 percent non-public alternative investments to which few investors have access. At the same time, said Kreckel, donors can support the work of a world-class University whose activities range from educating students to finding cures for cancer, among other endeavors.

Charitable Remainder Trusts have long enabled donors to assure trust beneficiaries an annual income for their lives, or for a term of years, with the remaining assets then passing to the University for a purpose designated by the donor.

The innovative endowment investment option for Charitable Remainder Trusts was first offered by Harvard in 2003. Since then, other leading universities with large endowments, such as Rochester, have chosen to join the ranks. While offering an attractive investment opportunity to alumni and donors, Charitable Remainder Trusts also benefit host schools by contributing to endowment growth, thus increasing available funds to support the institution.