After swoon, Lilly Endowment climbs back over $10B

June 6, 2015

Greg AndrewsThe Lilly Endowment is so low-profile that the Meridian Street office building from which it doles out hundreds of millions of dollars a year doesn’t even have signage.

But make no mistake. The private foundation’s influence across central Indiana is massive—and it’s becoming even more so, thanks to the resurgence in the value of Eli Lilly and Co. stock, its primary asset.

The endowment’s newly released annual report shows assets in 2014 rose from $7.7 billion to $10.1 billion, a 31-percent surge. The value of the endowment now has nearly doubled since closing 2010 at $5.3 billion.

The tax code requires that charitable foundations give away at least 5 percent of their assets annually. The endowment calculates that value using the average monthly value over the course of the year, which blunts the immediate impact that large annual increases or decreases in the value of assets have on grantmaking.

Still, the upswing is translating into many millions of additional dollars in grant awards. The least the endowment has given away in recent decades was $206 million in 2010. It distributed the most, $591 million, in 2001, the year after assets peaked at $15.6 billion.

In 2014, grant awards totaled $329 million, and they are set to rise to at least $391 million this year, with giving split among its priority areas of community development, education and religion. Most of the giving in the first two areas is concentrated in Indiana, while the religious support is broader.

Its influence across the city of Indianapolis, in particular, is difficult to overstate. Last year, for instance, it approved grants of $6.3 million to the Indianapolis Neighborhood Housing Partnership, $4.3 million to the United Way of Central Indiana’s annual campaign, $3.6 million to the Central Indiana Corporate Partnership’s advanced manufacturing initiative, $3 million to The Children’s Museum of Indianapolis’ “Beyond Spaceship Earth” exhibit, and $1.3 million to Gleaners Food Bank’s marketing campaign.

And that’s just a tiny sample of the endowment’s local largesse.

“Without question, it has made an unbelievable impact on the city of Indianapolis and continues to do so,” said longtime civic leader John Mutz, a former lieutenant governor who served as president of the endowment from 1989 to 1993.

All this was possible because of appreciation in the value of Eli Lilly stock that three Lilly family members gave to the foundation, starting with their initial bequest that launched it in 1937.

But it’s been a bumpy ride in recent years. The stock tumbled after a court in 2000 stripped its antidepressant Prozac of patent protection, and the slide continued into the new century as investors fretted over looming patent expirations on blockbuster drugs.

Lilly brass fought back with a wave of deal-making that brought higher-growth products into the fold, as well as by betting big on R&D innovations. Analysts say the company met the challenge, has restocked its pipeline, and is positioned to grow.

The stock, which hit $108 a day before the Prozac ruling, slid as low as $29 amid the financial crisis in 2009. It’s now rallied back to around $78.

Everyone is pleased about the resurgence, of course. But some investment pros question the endowment’s insistence on hitching its fortune primarily to the performance of a single stock, since the strategy runs counter to the widely embraced advice to diversify to reduce risk.

Mark Foster, chief investment officer of Columbus, Indiana-based money manager Kirr Marbach & Co., said his firm does not allow one investment to account for more than 6 percent of a portfolio’s value.

Despite launching a partial diversification plan in 2006, the endowment remains inextricably tied to the fortunes of the pharmaceutical company. Lilly stock sales from 2006 to 2008 and over the last 14 months have whittled holdings just 11 percent, from 147 million shares to 130 million.

At year-end, Lilly shares represented 90 percent of the endowment’s assets, and there is no sign that concentrataion is going to plunge anytime soon. In a written statement responding to IBJ questions, the endowment did not reveal a diversification goal but said it “intends to maintain as its primary investment asset shares of Lilly stock.”

The endowment is by far Eli Lilly and Co.’s largest shareholder, with an 11.7-percent stake.•


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