Downturn wracks college endowments

Turmoil in the financial markets and the economic downturn have devastated the endowments of college and universities across Rhode Island in recent months, forcing some to consider significant cuts and others to hold off awarding certain scholarships.
Most schools are reporting losses in endowment value well above 20 percent just in recent months. Those losses and stagnant fundraising numbers are hitting many institutions like 1-2 punches.
“We were making extraordinary progress [in fundraising],” said Ronald Vanden Dorpel, Brown University’s senior vice president of university advancement and director of the school’s capital campaign. “Then in January and February, we hit a wall.”
Brown officials had projected that the school’s endowment, which stood at $2.78 billion in July, would drop to $2 billion by the end of the school year. Last week, they acknowledged that it has nearly reached that level already – declining 26 percent since summer.
Grappling with severe budget problems and the need to cut the fiscal 2010 budget by $6 million, the university has said it plans job reductions, among other things.
But it’s not just the Ivy League school that is hurting.
At Rhode Island College, the nonprofit foundation charged with overseeing private donations for the school says its endowment since July has shrunk 22 percent to $14.7 million.
That sudden decline has left many of RIC’s endowed scholarship funds “underwater,” meaning their value has dropped below the amount of the donations used to start them.
For that reason, the foundation has decided to suspend its scholarships for next year – except in a few special cases – according to John Pagliarini, the foundation’s interim executive director.
“It saddens us to do it,” he said, noting that the foundation awarded $383,000 in scholarships to 280 students this year. “For the recipients, those scholarships go a long way.”
State law in most cases prohibits endowment administrators from drawing from funds that are underwater, and Pagliarini said, that is a prudent move. Depleting the funds now would hamper the endowment’s ability to recover when the market eventually rebounds.
The situation is much the same at the University of Rhode Island. At the start of this fiscal year in July, the URI Foundation had contributed $3.7 million from its $84.2 million endowment to URI’s operating budget for scholarships and endowed professorships.
Since then, the value of the URI fund has dropped 28 percent, and Glen Kerkian, president of the URI Foundation, isn’t optimistic about the coming fiscal year because many restricted funds are underwater.
“It’s likely [that $3.7 million contribution] will disappear this year,” he told Providence Business News last week.
A survey conducted by the National Association of College and University Business Officers and the Commonfund Institute found that school endowments nationwide lost an average of 22.9 percent of their values between July 1 and Nov. 30, compared with just a 0.5 percent loss for all of fiscal 2008.
And things have grown more dire since the start of 2009.
“We are well diversified,” Kerkian said of the URI Foundation’s investments. “But the conditions are so historical and so radical, there is no relief anywhere.”
At Roger Williams University in Bristol, the endowment – which totaled $103.6 million last July – has taken about a 30 percent hit, not including the $14 million drawdown to finance construction of two new buildings.
James Noonan, RWU’s vice president of finance, said the endowment spending policy allows for the school to withdraw up to 5 percent of the fund annually, based on a three-year rolling average.
That amount – about $4 million – would represent 2.7 percent of the school’s operating budget, Noonan said.
But some belt-tightening, such as leaving some staff positions vacant and reducing travel expenses, has left RWU with operating surpluses in recent years, enabling school administrators to avoid drawing from the endowment over the last eight years.
“We’re not dependent on the investment portfolio for our operating budget,” Noonan said last week. “We’re more tuition driven.”
Providence College officials also said they don’t rely heavily on their endowment when drawing up the school’s annual budget. Michael Frazier, vice president of finance and business, said that has made it easier to stomach the slide in the fund’s value. PC’s endowment stood at $121.88 million as of Dec. 31, down more than 20 percent from $154.24 million at the start of the fiscal year, Frazier said.
Brown’s Vanden Dorpel said the school was making good progress on its $1.4 billion capital campaign, collecting $34 million in new gifts and pledges in December alone, a number boosted by giving ahead of the end of the tax year.
Then the bottom fell out. Giving dropped to $2.1 million in January, and $2.2 million in February. The campaign, which started in 2005, has raised an average of $18 million a month. Vanden Dorpel saw the campaign reach the $1.32 billion mark and hoped to hit the goal by July, a year ahead of schedule. But we’re going to be in for a rough patch,” he said.
Still, the overall campaign has been a success, allowing for Brown to add 63 endowed professorships since 2004.
While acknowledging the challenges of fundraising in the recession, Vanden Dorpel and other school fundraisers said they are looking at the situation as an opportunity.
URI’s Kerkian said his organization is reaching out to benefactors whose scholarship funds are underwater and may be suspended, asking for “bridge gifts” so the foundation can still provide some financial aid. The school, which is in the midst of a $100 million capital campaign, took in $7.6 million over the course of October, November and December, well ahead of the $5.9 million projection.
At PC, David Wegrzyn, vice president of institution advancement, said a renewed effort to reach out to alumni has paid off, noting that the school has raised $9.4 million so far this fiscal year versus the $8.6 million in the same period a year ago – although he did acknowledge that a $3 million estate donation helped boost the numbers.
A survey released last month by the nonprofit Council for Aid to Education showed that college fundraising increased 6.2 percent in fiscal 2008, but Ann E. Kaplan, who conducted the study, said follow-up conversations with various schools indicate that many are running into difficulties.
All the dire talk of endowments and fundraising has changed the expectations of many.
“There’s a saying around my office,” Vanden Dorpel said: “Flat is the new up.” •