WSJ: College Endowments Plunge

<p>College endowments have suffered a sharp blow in the financial crisis, with aggregate investment losses of at least $94.5 billion, according to a new survey.</p>

<p>The losses, covering the period between July 1 and Nov. 30 of last year, likely understate the severity of the hit schools have taken, since they don't include losses in illiquid, hard-to-value investments that many schools have loaded up on. Schools warned that the declines could lead to cutbacks in financial aid.</p>

<p>The survey, by the National Association of College and University Business Officers and Commonfund Inc., a Connecticut nonprofit, covered 435 schools and is the broadest tally to date of the markets' toll on colleges, which held $413 billion in endowment funds as of June 30, when most schools' fiscal year ends.</p>

<p>College</a> Endowments Plunge - WSJ.com</p>

<p>Shouldn't be a surprise to regular readers here. The Brandeis thread shows the impact of endowment losses (aggravated by Madoff of course). We are in a deflationary implosion right now (see layoff announcements yesterday). We need something to stop the bleeding or it's going to get far worse.</p>

<p>BTW, when did the WSJ go free online?</p>

<p>Really stupid quote from Sen. Grassley, urging colleges to spend more from endowments given the sad state of the economy: "If an endowment is a rainy-day fund, it's pouring."</p>

<p>I don't know of any college that thinks of an endowment as a "rainy-day fund." It's an investment fund, invested to produce a steady and perpetual revenue stream, not squirreled away to be tapped when other funds are scarce. To increase endowment spending when the economy is down is to squander tomorrow's long-term revenue stream to patch up today's short-term deficit.</p>

<p>I guess it will be really interesting what happens with colleges in the next admission round, that is the HS class of 2010. This year they are still runnning on the steam , some of them are only slowly realizing that changes need to be made. I am afraid that most of those changes will end up being tuition hikes, which is not going to be pretty for colleges.
Someone in another thread suggested that international/full paying applicants will have more chances of being admitted - but I think that the number of those internationals with money is also getting smaller by the minute...</p>

<p>BCE,</p>

<p>The WSJ only has some of its online articles free of charge. For the rest, only paying members can access them. </p>

<p>NACUBO just released its 2008 endowment list (see <a href="http://www.nacubo.org/documents/research/NES2008PublicTable-AllInstitutionsByFY08MarketValue.pdf%5B/url%5D"&gt;http://www.nacubo.org/documents/research/NES2008PublicTable-AllInstitutionsByFY08MarketValue.pdf&lt;/a&gt;). Of course, these numbers are as of June 30, 2008. Since then, the average endowment has lost a further 23% (as of Nov 30, 2008).</p>

<p>Just look at the asset allocation in this endowment and you have to wonder how they put any number on current value.</p>

<p><a href="http://www.regents.umich.edu/meetings/01-09/2009-01-II-1.pdf%5B/url%5D"&gt;http://www.regents.umich.edu/meetings/01-09/2009-01-II-1.pdf&lt;/a&gt;&lt;/p>

<p>I believe I read somewhere that Columbia had 95% of their investments in alternative investments.</p>

<p>Michigan's endowment looks terrible. </p>

<p>Were the money managers paid on performance? Looks very risky to say the least.</p>

<p>If Columbia really has 95% of its endowment invested in alternative investments, that endowment is crushed too.</p>

<p>Here's another that looks highly leveraged with PE, etc., especially with future commitments.</p>

<p><a href="http://uvm-web.eservices.virginia.edu/public/reports/InvestmentReport_2008_11.pdf%5B/url%5D"&gt;http://uvm-web.eservices.virginia.edu/public/reports/InvestmentReport_2008_11.pdf&lt;/a&gt;&lt;/p>

<p>Virginia has $1.7 billion committed in the future? After losing over a $1 billion. Another fund that looks like a mess.</p>

<p>Amherst College is looking at some cash call nightmares, too.</p>

<p>They started out the fiscal year with a $1.7 billion endowment, with only 27% in publicly traded equities. More than half of the endowment in non-liquid alternatives, private equity, and so forth.</p>

<p>They are among the colleges being noticeably quiet, but figure their endowment has fallen to $1.2 billion. Maybe lower.</p>

<p>Buckle your seat belts. On July 1st, they had $500,000 (Edit: $500 million) in untapped cash-call commitments. Basically, they would have to liquidate every penny of their liquid investments and just barely cover the cash calls. And then, they would have 100% of their endowment parked in non-liquid, non-priceable "assets". Ouch. Ouch. Ouch.</p>

<p>On top of that, they still had $80 million cash frozen in the Common Fund at the end of Novemeber. And, virtually all of their bond debt is Variable Rate Demand Bonds.</p>

<hr>

<p>Oh, Brandeis will almost certainly be putting the money from pawning their art collection into cash calls. Their endowment is more than 62% invested in alternatives, private equity, and so forth.</p>

<hr>

<p>Everyone thinks it's the loss of endowment spending for operating expenses that is putting the squeeze on. That is true, but the real squeeze on colleges right now is cash flow. Harvard tried to sell $1.5 billion in private equity stake and couldn't find a buyer. That's why they sold taxable bonds to raise cash instead.</p>

<p>"On July 1st, they had $500,000 in untapped cash-call commitments."</p>

<p>Did you mean $500 million?</p>

<p>There sure are a lot of money managers that don't understand what some types of private equity are</p>

<p>I thought you weren't supposed to invest unless you understood the product.</p>

<p>I'm sad to read about the Brandeis situation.</p>

<p>I believe Bowdoin is going to add 10 more students to its class. Full paying students.</p>

<p>The</a> Times Record News</p>

<p>Yes. $500 million.</p>

<p>Ouch...................</p>

<p>Take a school's endowment and divide it by the number of students at a school, and we get the endowment/per student number. I notice a lot of people on CC think that number has some kind of magical relevance to a student's education. </p>

<p>The student does not get that number in educational benefits. </p>

<p>A large part of these endowments aren't liquid. </p>

<p>I read things like Amherst's endowment is $1 million per student.</p>

<p>So?</p>

<p>A large part of that endowment never gets to a student and isn't designed to get to that student.</p>

<p>It looks like Bowdoin makes money on full paying students, otherwise they wouldn't add any to meet their economic problems. The cost of educating a student must be less than the tuition at Bowdoin.</p>

<p>"Other steps to increase financial stability, Mills wrote, include increasing the student body by 10 full-time students in each of the next five years — tuition and fees, he noted, are the college's single largest source of income."</p>

<p>A little bizarre that it is 10 more students per year. How much can you make on 10 more students?</p>

<p>Michigan has about 52.4% in illiquid funds? Is it safe to say it's pennies on the dollar now?</p>

<p>It's irresponsible spending when you hear things like full paying students actually get a 30k discount on the education they supposedly receive. </p>

<p>Losing 75% of the endowment means it'd take a 400% gain to get back to 2007 level. I can't imagine beating inflation at this point.</p>

<p>Michigan screwed up big time.</p>

<p>"It's irresponsible spending when you hear things like full paying students actually get a 30k discount on the education they supposedly receive"</p>

<p>We hear things like that but their false.</p>

<p>
[quote]
"Other steps to increase financial stability, Mills wrote, include increasing the student body by 10 full-time students in each of the next five years — tuition and fees, he noted, are the college's single largest source of income."

[/quote]
</p>

<p>That only works within a very narrow window where you can increase enrollment without spending one additional dime on faculty, housing, library books, etc. In other words, it only works if you dilute the product.</p>

<p>In 2007-08, Bowdoin took in $34.9 k per student in net tuition, room, and board. So an additional 10 students per year is $349,000 in revenue. Bowdoin spent $68.5 k per student last year.</p>

<p>BTW, Bowdoin is actually going up 50 students, phased in at 10 per year over the next five years. This with a hiring and construction freeze along with signficant budget reductions.</p>

<p>
[quote]
I read things like Amherst's endowment is $1 million per student. So? A large part of that endowment never gets to a student and isn't designed to get to that student.

[/quote]
</p>

<p>Actually, Amherst, Pomona, Swarthmore, and Williams all spent between $34k and $40k **per student **from their endowment returns last year. Think of it as a $1 million trust fund for each student's use during the four years they are at the college. Those colleges were all up around $80,000 in per student spending last year.</p>

<p>"I thought you weren't supposed to invest unless you understood the product."</p>

<p>It's called gambling.</p>

<p>Young whippersnappers that believe that trees really do grow to the sky.</p>

<p>If you want to have a little fun, checkout a site called capitalstool.com</p>

<p>"That only works within a very narrow window where you can increase enrollment without spending one additional dime on faculty, housing, library books, etc. In other words, it only works if you dilute the product."</p>

<p>No. It's marginal revenue vs. marginal costs. It doesn't necessarily dilute the product.</p>

<p>In 2007-08, Bowdoin took in $34.9 k per student in net tuition, room, and board. So an additional 10 students per year is $349,000 in revenue. Bowdoin spent $68.5 k per student last year.</p>

<p>Those numbers are very misleading. Bowdoin may have spent 68.5k per student, but they don't pay 68.5k for every student.</p>

<p>I have no idea how much Bowdoin pays per student, but it is obvious that the last student accepted at Bowdoin before this crisis doesn't cost Bowdoin 68.5k.</p>

<p>
[quote]
I have no idea how much Bowdoin pays per student, but it is obvious that the last student accepted at Bowdoin before this crisis doesn't cost Bowdoin 68.5k.

[/quote]
</p>

<p>Depends on which incremental student it was. If it was the incremental student that forced Bowdown to hire another tenure-track Arabic professor or build a new dorm, then that student cost way more than $68,000.</p>

<p>The incremental cost is zero if Bowdoin isn't increasing the size of the faculty or adding more dorms or expanding the library to accommodate additional enrollment. But, in a real sense, that is undermining the essence of a small college's product.</p>

<p>I'm sorry to say so but I think Grassley has a point. Any University or College with a significant endowment would be unwise to cut back on spending during this crisis. Some schools will be forced to cut back on new faculty hires and it is an excellent opportunity to pick up high quality faculty inexpensively. Construction costs are bound to be low so it's also and excellent time to build that long planned library, or lab, or dorm. In fact the point of an endowment is to weather downturns from any source. If no downturns were ever expected keeping a huge endowment would be a tremendous waste of resources. The same is true of merit and need based aid. If others are cutting back it's an excellent opportunity to attract the best students by continuing to be generous with aid of both types.</p>