The University of Michigan's Endowment Fund has topped the $1 billion mark for the first time in the UM's 176 year history. The Fund is the largest of any public university's in the nation that were not university systems, according to the National Association of College and University Business Officers.

The Endowment Fund-up from $160.6 million a decade ago-is made up of "true endowment and quasi endowment funds," explains Norman G. Herbert, U-M treasurer and investment officer. True endowment funds are those that donors have given with the intent of providing perpetual programs. The University invests the gifts and spends only the income from the investment. Quasi endowment funds, Herbert continues, are funds that function as endowment, and they include gifts donors have said can be spent or used as endowment.

The University has thousands of endowments. Elizabeth S. Hokada, associate investment officer, describes the Endowment Fund as similar to a big mutual fund with each endowment owning a certain number of shares. The recent bull market, gifts to the Campaign for Michigan and accumulated surpluses that are being invested all have contributed to the Endowment Fund's recent growth," according to Hokada.

The University is meeting its goal of looking for long-term investments that provide increased amounts of distribution and protect against inflation, Herbert says.

Distributions over the last 10 years have approached 6 percent annually, providing funds for the University's current operations.

In addition, the Fund has grown by 2.6 percentage points per year above inflation, Herbert notes, "and the 2.6 percent is added value above the gift and the growth that is needed to keep up with inflation."

Herbert attributes the University's recent success to "long-term investments in international and distressed markets.

The Endowment Fund is becoming an increasingly important source of revenue to support research, teaching, scholarships and fellowships, Hokada says, although proceeds from the Endowment Fund are still a small part of the operating fund when compared with state support and student fees.

A strong, growing Endowment Fund also helps the University maintain its high bond rating so it costs less for the University to borrow money.

Moody's Investors Service raised the rating of the UM's debt to Aa1 from Aa last March, marking the first time Moody's had assigned a rating higher than Aa to a public university. In announcing the new rating, a Moody's spokesperson attributed the University's "very strong" financial condition to its "successful fund-raising campaigns and conservative fiscal practices," as well as other funds that offer great financial flexibility.

The U-M ranked 19th nationally among private and public colleges and universities in 1993 market value of endowment assets. Three public university systems had larger endowments--the University of Texas System, Texas A&M University System and Foundations, and the University of California System.

The top five institutions in terms of endowment in 1993 were Harvard University, the University of Texas System, Princeton University, Yale University and Stanford University--U-M News and Information Services.