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Strategic Budget Advisory Committee (SBAC)
Strategic Budget Advisory Committee

Data Show College Endowments Loss is Worst Drop Since ’70s

January 26, 2009

By KATIE ZEZIMA - The New York Times

The value of university endowments fell about 23 percent on average in the five months ended Nov. 30, according to two newly released reports.

The steep declines are forcing colleges and universities across the country to contemplate wage freezes, layoffs and a halt to construction projects.

The drop found by the reports is the biggest in the value of college and university endowments since the mid-1970s, said John S. Griswold Jr., executive director of the Commonfund Institute, which manages money for educational institutions and other nonprofits.

“It’s been very sudden in some ways,” Mr. Griswold said. “There were people predicting the decline a year ago or more, but I don’t think anyone could claim to see the extent of this. These are unprecedented numbers.”

The reports, prepared for the National Association of College and University Business Officers by the financial services company TIAA-CREF and the Commonfund Institute, drew on data from 796 institutions for the 2008 fiscal year, which ended June 30, and on additional statistics gleaned from a follow-up survey with 435 for the period from July 1 to Nov. 30.

They found that while endowments gained in value by about 0.5 percent in the old fiscal year, they lost nearly a quarter of their worth in the subsequent five months, a period in which the financial markets sank.

“It’s a rolling contagion that hit us,” Mr. Griswold said.

The pain was spread among institutions large and small, private and public. When endowments were categorized by size, even the least affected — those worth more than $1 billion — were found to have lost an average of 20 percent. Those of $500 million to $1 billion saw the biggest decline, about 25 percent. Public institutions lost an average of 24 percent, private institutions 22 percent.

“Both public and private institutions are going to be very challenged, just in different directions,” said P. Brett Hammond, chief investment strategist of TIAA-CREF. “States are in trouble themselves, and the downturn in state support comes along with declines in investments. In the private sector, at the same time endowments have declined students need more help than ever.”

Cornell is facing a 10 percent budget shortfall for the current fiscal year because of a 27 percent decline in its endowment over the last six months, a drop in state financing and alumni giving, and students’ need for more financial aid, according to a report issued this week by the university’s president, David J. Skorton. To close the gap, the university plans to freeze campus construction and draw on $150 million in reserve cash and $35 million more from the endowment than was planned.

Syracuse University has already announced layoffs, and Dartmouth, whose endowment lost 18 percent of its value from July 1 to Dec. 31, has said they are inevitable.

“We continue to fund approximately 35 percent of the college-only operating budget through endowment distributions, and we do not have additional revenue sources that can replace this level of support,” Barry P. Scherr, Dartmouth’s provost, and Adam Keller, executive vice president, said in a statement issued last week.

“We anticipate that some of our endowment investments will continue to show losses,” they added, “and that many of our generous donors will be unable to give at the same levels for some time to come.”

Charles L. Schearer, president of the private Transylvania University in Lexington, Ky., said the endowment there, which finances about a quarter of the operating budget, had lost 28 percent of its value since June 2007. Transylvania has cut back on staff travel, declined to fill job vacancies, frozen overtime and halted all construction projects. The university is planning a major fund-raising push in the next year to help make up for the endowment losses.

“We’re going to have to capture some of that money back,” Dr. Schearer said in an interview. “We’re not looking at this as if there will be a rapid recovery. We’re anticipating a slow and gradual recovery.”

Sixty percent of the institutions responding to the follow-up survey said they did not expect to change the amount they draw from their endowments in the current fiscal year.

Mr. Griswold thinks that wise.

“People aren’t making snap decisions, decisions that seem based on a panic reaction,” he said. “That’s terrific. They should keep a steady hand on the helm.”