Recent reports in the Wall Street Journal and The New York Times show that college endowments suffered an aggregate investment loss of $94 billion, an average loss of between 23 and 24 percent, and Houston universities are no exception.
In his State of the state address on Tuesday, Governor Rick Perry said the Texas economy is ‘still in better shape than most other states,’ but administrators at UH Systems and Texas Southern University both say endowments have diminished at least 25 percent.
‘That (number) changes almost daily because of the mark values, but if you see the market’s down by, let’s say it’s down by 30 percent, we’re doing a little better, but we’re all in the same range,’ Carl Carlucci, vice chancellor for administration and finance for UH and UH Systems, said. ‘Even the big schools with the really impressive managers have seen decline, because the whole market goes down, there’s no way to protect your portfolio from that.’
Carlucci’s comments are backed by reports that said even schools with endowments of over $1 billion show an average loss of more than 20 percent.
David Bradley, vice president of administration and finance for UH- Downtown, said that endowment losses stem from heavy dependence on equities.
‘It’s because of what’s happened in the stock market. The endowments are invested mostly in equities. You’ve got a mix of fixed stuff – bonds and those things – but you also have a pretty good size of your portfolio is stocks,’ Bradley said. ‘In terms of how that affects us, if you look at the endowment funds, about two-thirds of the endowment that we have is sports scholarships, so what’s going to be the biggest impact is how you deal with it in terms scholarships.’
Because endowments are principally rooted in stocks, a rebound in the market could cut university’s losses substantially, Carlucci said, but when that will occur is anybody’s guess.
‘When you have an endowment, people are expecting you to produce returns to support programs every year. In our case, we have been paying about 5 percent, but we will be adjusting the payout and it’s probably going down,’ Carlucci said ‘hopefully it will be earned back we earned back when the market recovers.’
The majority of TSU endowments relate directly to indexes like’ the Dow Jones averages, and that although those indexes are down, TSU doesn’t suffer immediate losses, TSU Executive Director of Budget Darrell Dortch said.
‘It’s not really a lack of funding. These are unrealized losses in a way,’ Dorch said. ‘This year, depending on what the broad market does, we can recoup.’
TSU and UH Systems calculate endowment payout based on a 3-year rolling average.’ TSU has implemented its first treasury management program in several years to keep close watch over its endowment investments.
‘We have main investment advisors that we communicate with and we have two additional advisors that do our day-to-day investment,’ Dorch said. ‘I have a meeting scheduled this week to look at, what the investment horizon is for the year 2009 and also I have to understand their thought process as far as investments of university funds.’
UH Systems will also soon be assessing its future.
‘There is a meeting of the endowment management committee of the Board of Regents scheduled for early February,’ Bradley said. ‘One of the things they are going to consider is what should be the endowment payout policy going forward. They may modify that because of what’s occurred.’
With scholarship-funding endowments diminished in every state, Gov. Perry proposed ‘freezing student’s college tuition rates for 4 years at the level they pay as an entering freshman’ in his address.
Carlucci said that though endowments are down, sound financial planning might soften the blow to scholarship funds.
‘We’re paying out to various accounts for scholarships and everything else. Some of those accounts will have money in them that they haven’t spent, and hopefully they will be able to use some of that money to cushion this. But we won’t know until the individual units submit their budgets,’ Carlucci said.
