This article is the first in a two-part series examining college endowments. This article focuses on the findings of a report detailing major endowment losses. The second article, to appear in tomorrow's Daily, will look at the possible reasons for these losses.
University endowments across the country, including that of Tufts, suffered huge losses in the past fiscal year, according to a Jan. 28 National Association of College and University Business Officers (NACUBO) and Commonfund Study of Endowments (NCSE) report.
The NACUBO and the Commonfund Institute surveyed 842 institutions and found that endowments fell by an average of 18.7 percent during the 2009 fiscal year, which ended June 30.
These losses coincided with the economic recession and have led to a review of financial management.
While these losses appear quantitatively drastic, comparisons reveal that university endowments over the course of the year performed relatively better than the overall financial market, according to NACUBO Director of Research Policy and Analysis Ken Redd.
He pointed out that while university endowments' losses were on average kept below 20 percent, the Standard and Poor's 500 Index dipped nearly 26 percent during the same time.
Still, schools like Harvard and Yale suffered egregiously, losing nearly 30 percent of their endowments, while Tufts' endowment declined by 23.7 percent.
The outlook for university endowments may not be as bad as the numbers indicate, however, in light of the fact that the 10-year national average for net endowment returns is four percent.
Tufts' endowment has nearly doubled since the year 2000, a statistic that university officials are quick to highlight at a time when short-term financial news tends to be overly emphasized.
Chairman of Tufts Administration and Finance Committee Andrew Safran (LA '76) emphasized the importance of this long-term growth trend over the temporary losses of the past year and pointed out that since 1999, the university endowment's value per student has increased from $62,000 to about $120,000.
Still, the losses of this past year will likely force universities like Tufts to make adjustments to both their annual financial budgets and long-term investment strategies, according to a press release summarizing the NCSE report.
These changes will likely revolve around issues of governance, such as managerial malpractice, and portfolio rebalancing, according to Redd.
"I guess you could say institutions are making sure their plans and policies are being strongly adhered to and that investment managers are monitoring things," Redd told the Daily. Exactly what those changes are, however, remains to be seen and Tufts officials maintain that despite the size of the recent loss, no significant changes are anticipated.
"No major strategic or policy changes have been made in response to market conditions; marginal changes are made on a regular basis," Chief Investment Officer Sally Dungan said in an e-mail.
Safran also did not point out any specific changes but said that the university's investment officers have always and will continue to practice prudence and ensure that investment allocations will meet Tufts' long-term needs.
"We constantly evaluate our asset allocations and constantly review the managers of our university endowment funds and make changes if appropriate," Safran said.
While the financial crisis has hurt endowments significantly, Redd noted that universities on average actually increased spending rates and were able to support students and faculty through these increases. According to the NSCE report, 43 percent of the institutions surveyed increased their spending.
Investment managers "did everything that they could" to continue to provide financial aid packages to support students and families, Redd said.
