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August 11, 2003
Mayer Mitchell guiding force behind decision No struggle over these funds USA builds endowment separate from foundation Joe Busta Mayer Mitchell
By JEFF AMY Staff Reporter

It's the other University of South Alabama endowment, maybe the clearest indication that the estrangement between the university and the USA Foundation could last for a long time.

Since May 2000, the university has built a new $15.4 million endowment under the direct control of its board of trustees. While that's small compared with the $221 million held by the free-standing foundation, it's close to catching up with some of USA's peers nationally.

The trustee investment committee met Thursday and voted to invest the nearly $6 million the endowment has collected this budget year with the Arlington Private Value Fund, which will be managed by O. Mason Hawkins. Hawkins is a Memphis-based investment manager who follows the same sorts of strategies as Warren Buffett, searching for stocks worth more than others recognize.

USA officials said the long-term goal is to have an endowment that the university can direct to its internal priorities without having to persuade the foundation board. The foundation and university have been locked in a decadelong conflict for control of foundation assets.

The foundation has maintained it needs to be independent, but the university has said the group is far too distant from USA's administration and does not contribute enough money to the school.

"This endowment will serve the needs of the university," USA President Gordon Moulton said.

Aubrey Green, the foundation board president, said he didn't know anything about the separate endowment and declined comment Friday.

The foundation's endowment, held solely for the benefit of the 12,000-student university, is actually quite large for a school of USA's age, size and stature. For example, the University of Alabama at Birmingham, with a much larger medical and research enterprise and 16,500 students had a $211 million endowment at the end of the 2002 budget year. Tampa's University of South Florida, with an enrollment more than three times the size of USA's, has an endowment of $241 million.

USA's own small endowment isn't in that neighborhood. But the trustee-held fund is already gaining on some USA peers. Wright State University in Ohio, for instance, has only a $26.4 million endowment. East Tennessee State University has a $41.8 million endowment.

The guiding force behind Thursday's investment decision was USA trustee Mayer Mitchell. That may be appropriate, considering that $6.4 million of the total $15.4 million endowment is money donated by Mitchell and his brother, Abraham Mitchell. Mayer Mitchell said he and his brother planned to invest their private money in the Arlington fund alongside the university endowment.

Mitchell said he has no personal financial interest in the fund managers, "but my family is going to have a significant interest in this fund."

The USA endowment has also received a range of smaller gifts in its three years. For example, the university received $650,000 from the estate of a deceased Fairhope couple, Gaston L. Cooke and Sarah Evelyn Cooke, for use in neuroscience research. The Cookes' only child, who died before they did, was mentally retarded.

Gaston Cooke, a former airline mechanic supervisor who died in 1997 at 86, and Evelyn, a former ballet teacher who died in 2001 at 88, left much of their money to the university. Joe Busta, USA's vice president for development and alumni affairs, said it could be combined with another bequest to create an endowed professorship.

Busta has been working to strengthen donations and giving to USA since he was hired in April 2002. The university hopes to mount a large fund-raising drive in the near future, its first ever.

A large part of the USA Foundation's holdings comes from federal Medicaid funds received by the university hospitals for treating large numbers of poor patients. More than $135 million in such disproportionate share payments were transferred to the foundation by the university starting in 1989. Frederick Whiddon, USA's founding president, made the transfers as part of his dream of building a $1 billion endowment at the foundation.

Displeasure with the transfers was one of the root causes that eventually led Mitchell and the other trustees to force Whiddon to resign in 1998. The loyalist board of the foundation created a managing director post for Whiddon, which he held until his May 2002 death. Since Whiddon left USA, the university and the foundation have been embroiled in a struggle over who should control the foundation's investment policies and direct its giving to USA.

The university has not placed any disproportionate-share funds in the new endowment, said Wayne Davis, vice president for financial affairs. Some of that money is being used to enhance research, and some is being spent on hospital improvements, officials said. The school has channeled $3.2 million in greyhound racing tax money it has received from the Mobile County Racing Commission into the new endowment.

Both sides have said the foundation power struggle has harmed outsiders' interest in donating to the foundation. With the new endowment, though, USA is trying to reconnect with some of the donors who gave to the university and the foundation in the past. Many donations that were made to USA were transferred to the foundation, along with the Medicaid money.

Earlier this summer, the university held a lunch for members of the Point Clear Charities group. The organization donated almost $2.5 million to the foundation during the 13 years it sponsored Polo at the Point. That money supports a cancer research chair that was recently filled by Dr. Joseph LoCicero, a thoracic surgeon and lung cancer specialist. Now that the polo event has resumed under different sponsorship, Busta said the university is trying to seek donations from the new group.

The medical school and associated enterprises, like the fledgling cancer research center, are the entities most likely to attract big donations. But Busta said he thinks gifts could enhance all of USA's efforts, noting the recent $1.1 million given for scholarships by the late Earl and Mildred Starnes of Grove Hill.

"I think every college here is a magnet for large gifts. Probably the number of large gifts in medicine will be larger than most," Busta said.

Since its formation, the university-controlled endowment has seen its total assets decline but then rebound to about even, moving with the stock market. Still, that beats the foundation, whose assets have fallen from $336 million on June 30, 2000, to below $250 million today.

Mitchell and other USA officials hope the new investment will bolster the endowment's returns.

Busta said a good return on funds could encourage giving. "When I talk to a sophisticated donor, they ask those questions," he said.

Mitchell said he thinks growth will also be helped because of new money from gifts, a dig at the foundation, which doesn't actively seek funds.

"We're going to do it properly, conservatively and in an informed way," Mitchell said. "It will grow not only through enhanced returns but through donations."