Chief Financial Officer's Report

Portrait of Geoffrey Chatas

The world needs solutions to its greatest challenges, and the University of Michigan is well positioned to lead the way.

U-M benefits from a strong financial position, tremendous intellectual excellence and agile leadership committed to leveraging these resources for the public good. President Santa J. Ono engaged the university community to develop Vision 2034, a strategic framework that is the first of its kind at U-M and is already shaping new initiatives across the university. This vision was developed alongside Campus Plan 2050, another first of its kind at U-M. Released in September 2024, the campus plan is a roadmap to the future of our physical campus to support all the impact areas of Vision 2034, laying the groundwork for exciting and important changes. Vision 2034 and Campus Plan 2050 together provide a pathway for the University of Michigan to continue to excel well into the future.

An aerial view of North Campus

Against the backdrop of these and other major initiatives, U-M has maintained a steady focus on keeping its foundation solid, both financially and in other ways. This will ensure that the university is able to continue educating students from around the world, conducting research that helps society and providing outstanding health care services.

MAINTAINING A STRONG FINANCIAL POSITION

The university’s financial position continues to be strong, with total assets and deferred outflows of $35.4 billion and total liabilities and deferred inflows of $13.1 billion at June 30, 2024. Net position, which represents the residual interest in the university’s total assets and deferred outflows after total liabilities and deferred inflows are deducted, increased $1.6 billion to $22.3 billion at June 30, 2024.

While net investment income can be volatile from year to year, our endowment distribution policy and long-term investment strategy combine to insulate U-M from volatility and provide dependable annual support for operations. The endowment distribution policy smooths the impact of capital market volatility by providing for annual distributions of 4.5 percent of the seven-year moving average fair value of the University Endowment Fund. This policy, along with the endowment’s growth, allowed for record distributions of $506 million to support university operations in FY 2024. Distributions from more than 13,000 individual endowments provide ongoing and dependable support for a variety of academic, health-related and other needs across the university including student scholarships, professorships, clinical operations and research.

Endowment funds, which are invested principally in the university’s Long Term Portfolio, increased $1.3 billion to $19.2 billion at June 30, 2024. The table below summarizes the investment performance of U-M’s Long Term Portfolio in relation to comparative benchmark portfolio returns.

INVESTMENT PERFORMANCE

A chart showing that expected investment returns are higher than U-M's benchmark

Reflecting its diversified nature, the Long Term Portfolio’s FY 2024 performance was driven by strong positive returns in equities, absolute return and real assets. U-M also benefited from an emphasis on climate solutions-related investments, which were among its highest-performing investments. Though the university’s private investments fared well relative to their benchmarks, private equity investments generally lagged public markets in FY 2024. U-M’s Long Term Portfolio generated an 8.9 percent return for the year against this backdrop, which compared well with other large endowments but lagged the performance of endowments with less diversified portfolios that benefited from higher exposure to public stocks.

The university’s approach to portfolio diversification has helped over longer time periods. With a five-year annualized return of 11.0 percent and a 10-year annualized return of 8.7 percent, the Long Term Portfolio is in the top quartile of performance relative to other college and university endowment investment portfolios. Similarly, the Long Term Portfolio’s 20-year annualized 9.3 percent return is well into the top 10 percentile of performance, and compares favorably to the 7.3 percent annualized return for the median university endowment over the same period.

DIVERSIFICATION IN REVENUE STREAMS

U-M has a diversified revenue base, which has enabled the university to remain financially stable through various economic cycles and challenges as well as avoid unnecessary dependence on student tuition and fee increases. The components of the university’s sources of revenue are depicted below.

Funding from the state of Michigan continues to be an essential source of financial support for U-M. In FY 2024, state educational and supplemental appropriations totaled $420 million. We appreciate the continued support for higher education and U-M by the residents of the state.

U-M’s operating budget continues to balance academic excellence and investment in the future with student affordability and access. For the Ann Arbor campus, tuition rate increases for FY 2024 were 2.9 percent for in-state undergraduate students and 4.9 percent for nonresident undergraduate students and most graduate students. For the Dearborn campus, tuition increased 4.4 percent for full-time, in-state undergraduates and graduate students. For the Flint campus, tuition and fees increased by 4.9 percent for in-state undergraduates and graduate students.

The FY 2024 budget also included a 7.8 percent increase in financial aid for undergraduates on the Ann Arbor campus, with 6.0 percent and 9.0 percent increases in institutionally awarded aid on the Dearborn and Flint campuses, respectively. U-M has been able to limit tuition increases and provide generous financial aid due in part to a long-standing commitment to controlling costs and improving efficiencies.

Demand for a U-M education continues to grow. More than 100,000 prospective first-year-student applications — a record number — were submitted for the university’s three campuses. This is the 17th consecutive year that applications have increased. U-M’s impressive global reputation and incredible value make it a top destination for outstanding students from Michigan, the United States and countries around the world.

ADDRESSING BOLD CHALLENGES THROUGH RESEARCH

A CIGLR researcher processing samples on board a ship

Diverse teams from across the three U-M campuses worked together during FY 2024 to catalyze new knowledge and discoveries for the betterment of society, as part of U-M’s commitment to serve the world through research, scholarship and creative practice.

For the first time in its history, the university surpassed $2 billion in research expenditures during FY 2024, driving efforts that span a wide range of disciplines, from AI ethics and policy, to sustainable energy and transportation, to cutting-edge immunotherapy. Continuing advancements in these areas hold immense promise for a better future. Total research volume increased by 9.9 percent — to $2.04 billion — when compared to the previous year; U-M also secured 1,931 new research awards during FY 2024.

The university continues to strengthen its partnerships with the federal government, a primary sponsor of U-M research, scholarship and creative practice. During FY 2024, research expenditures sponsored by federal agencies totaled $1.17 billion, which accounts for more than half of the university’s total research volume.

As a leading public research university, U-M continues to embrace its unique ability to translate new knowledge and discoveries from its laboratories, studios and research spaces for broad societal impact. In FY 2024, U-M faculty members and researchers generated a record-breaking 615 new invention reports, a rare accomplishment for any research university. University support also helped to launch 28 startup companies in sectors that range from breath-diagnostic treatments to enhancing election security technologies.

GROWING COMPREHENSIVE ACADEMIC MEDICAL CENTER

Michigan Medicine continues to be acknowledged across the country as a leader in advanced patient care, innovative research to improve human health and comprehensive education of physicians and medical scientists. It includes University of Michigan Health (UMH), University of Michigan Medical School, Michigan Health Corporation and U-M Health.

UMH represents the combined clinical operations of the southeastern Michigan-based facilities while U-M Health represents the university’s statewide network of hospitals, hospital joint ventures and other hospital affiliations, primarily consisting of UM Health-Sparrow and UM Health-West. Together UMH and U-M Health, which currently include 10 hospitals and hundreds of clinics, realized positive financial results in FY 2024 with an operating margin of 2.2 percent — or $170 million — on operating revenues of $7.9 billion.

Michigan Medicine is building its clinical enterprise for both now and the future by improving access and experience, promoting and supporting continued innovation and advancing clinical integration, with an emphasis on providing care when and where it’s needed most.

In the coming year, Michigan Medicine will continue to invest in its faculty, staff and infrastructure. This includes continuing construction of the D. Dan and Betty Kahn Health Care Pavilion, a new world-class hospital scheduled to open in fall 2025, and ongoing development of a statewide network that supports integrated, cost-effective and high-quality health care services for the patients and communities it serves across Michigan.

A BRIGHT FUTURE FOR MICHIGAN

Because of its financial strength, the University of Michigan remains well positioned to move forward with Vision 2034 and Campus Plan 2050. U-M is one of only seven public universities in the country to earn the highest possible credit ratings from S&P Global (AAA) and Moody’s (Aaa). We’ve maintained these outstanding ratings for years, which is a clear indication of our long-term financial strength and stability.

To maintain excellence in education, research and patient care as well as offer collaboration opportunities for multiple disciplines, U-M makes important capital investments in a wide array of its facilities. An overview of the capital projects completed, in progress and in planning during FY 2024 appears in the Major Projects section. U-M has long balanced investing in new facilities against renewing existing facilities, which enables us to avoid an excessive accumulation of deferred facility maintenance.

Please review Management’s Discussion and Analysis in conjunction with the audited financial statements. This section of the annual report includes additional details about U-M’s financial strength, prudent financial policies and commitment to excellence. When combined with our extraordinary employees dedicated to the public good, U-M is well situated to continue making contributions that enrich the world.

Sincerely,

Geoffrey Chatas signature

Geoffrey S. Chatas
Executive Vice President and Chief Financial Officer