Endowments of colleges and universities across the state are recovering from double-digit losses, but some school administrators say volatility in financial markets is still making it hard to determine how far to dig into the funds for financial aid and operating costs.
Most schools experienced market returns on their endowments of around 10 percent in fiscal year 2010, ending June 30, according to an informal survey of some local institutions by Providence Business News.
But that performance could have been much better, if not for steep declines in certain investment markets in late spring, many administrators said.
“This time is very unusual,” said James Salmo, executive director of the nonprofit foundation at Rhode Island College that oversees private donations and the school’s endowment. “Most of us in this industry have never seen this kind of fluctuation.”
RIC’s endowment stood at about $18 million as of June 30 – miniscule when compared to Brown University’s multibillion-dollar fund, but it is still important to hundreds of students depending on the financial aid packages provided by the endowment.
The good news for RIC: The fund posted an 8 percent return on investments in fiscal 2010, after losing about 22 percent in value the year before. The bad news: Decisions about financial package awards were made earlier in the year, when the stock market was on the rise.
“In May and June, the market bumped way down,” Salmo said. “We made our decisions and we are allocating based on those decisions. But the stock market is so volatile right now that every year, you have to sit and look at the awards and [see if there has] been enough earned to make that distribution.”
As it is, the foundation cut back on its allocations because the endowment is still recovering from the previous year’s loss. Salmo said the foundation awarded $212,000 in scholarships to 120 students in fiscal 2010, down from $387,000 to 301 students a year earlier.
“It used to be that [the returns were] pretty much good news,” he said. “It was, ‘how much have we earned and can we increase the awards?’ The questions now are a little bit more difficult.”
It’s too early to say how university and college endowments performed on average nationwide in fiscal 2010, which for most schools ended June 30. Many schools are still completing audits of their endowments performance.
One early indicator, however, is Harvard University, which controls the nation’s largest endowment. The university said recently the fund had climbed 11 percent for the year ending June 30, to $27.4 billion.
Brown University has the largest endowment in Rhode Island by far, but school officials declined to release the fiscal 2010 numbers earlier this month, or even talk about them, until they reconcile their records and complete the financial reports in the coming weeks.
Brown’s endowment lost more than 27 percent of its value in fiscal 2009 in the midst of financial market turmoil and a down economy. The fund, which stood at $2.78 billion in July 2008, declined to $2.02 billion over the following 12 months. Still, by NACUBO’s count, Brown had the 26th-largest endowment in the nation as of July 2009.
It’s a good bet that Brown’s endowment value – as well as funds at most other schools – has climbed higher despite lackluster fundraising results.
“Because the Standard and Poor’s 500 index increased 14 percent in the FY10, and because endowment performance generally tracks the S&P 500, it is likely that many endowments recovered at least some portion of the losses they suffered last fiscal year,” said Kenneth E. Redd, NACUBO’s director of research and policy analysis. “How much they have recovered cannot be answered in full until we collect and analyze the data institutions will begin to send us in the fall.”
At Roger Williams University in Bristol, the economic downturn took its toll in 2009, cutting the school’s $103 million endowment by more than 30 percent.
But things turned for the better in fiscal 2010, with the fund registering an 11.4 percent net investment return, ahead of a weighed index benchmark of 10.6 percent, according to Jerome Williams, senior vice president of finance and administration. The endowment has bounced back to about $65 million.
Williams said RWU has avoided the difficulties caused by a wildly fluctuating endowment value because the fund’s spending policy requires the school to withdraw up to 5 percent annually, based on a three-year rolling average.
Still, the carnage in 2009 has spurred some changes in investment policy at Roger Williams.
“Over the last two years we’ve been moving to a more diversified portfolio, and we added asset classes and managers,” Williams said. “We’re expanded into global equities more than we were in the past, and also global fixed income.”
Adding to the diversification: RWU now has 14 investment managers overseeing different portions of the fund. “I think it’s helped the portfolio,” Williams said.
Other schools have tweaked asset allocations, too, in some cases to take advantage of opportunities in a depressed market.
William Hall, Salve Regina University’s chief financial officer and vice president of administration, said the school invested a portion of the endowment in a new asset category called “opportunistic credit” that featured high-yield bonds last year.
“There were a lot of good companies that got beaten down yet they really weren’t weak, so it was a good investment,” Hall said.
Salve’s endowment – which went from a high of $42 million to a low-water mark of $33 million in 2009 – stood at about $36 million on June 30, thanks in part to a 12 percent net investment return in fiscal 2010.
Hall acknowledged that things looked much brighter in February and March. Between April and June 30, he said, the endowment posted investment losses of 6 percent.
The effects on Salve were limited, however.
“The one time there’s an advantage to having a smaller endowment is that we’re not necessarily counting on a lot of it for operations like the Ivy League schools,” Hall said. “It doesn’t have a tremendous impact on us.”
Bryant University officials also said they don’t rely heavily on their endowment when assembling the school’s annual budget. Still, they keep a close eye on its performance, particularly since it has fluctuated from a high of $168.49 million in 2008 to a low of $120.21 million the following year.
Barry Morrison, Bryant’s school treasurer and vice president for business affairs, said the value was $126.5 million as of June 30, after posting about a 10 percent investment return for the fiscal year.
At Providence College, its endowment has climbed from a low of $122.11 million in July 2009 to $137.71 million as of June 30 this year because of fundraising and an 8 to 9 percent investment return, according to John Sweeney, PC’s chief financial officer and senior vice president of finance and business.
He acknowledged that the fund is still a ways off its high-water mark of $154.24 million in July 2008. Still, Sweeney said, the lower endowment value and the market volatility didn’t have school officials contemplating a reduction in financial aid packages, even with a record number of 1,100 students in this school year’s freshmen class.
“[The situation] didn’t force those types of conversations,” Sweeney said.
The situation is different at the University of Rhode Island.
At the start of fiscal 2008, the URI Foundation contributed $3.7 million – or more than 4.3 percent – of its $84.2 million endowment to URI’s operating budget for scholarships and endowed professorships.
But the following year’s endowment payout was withheld after the value of the endowment dropped to about $60 million last year – putting many of the endowed scholarships’ funds “underwater,” meaning their value dropped below the amount of the donations used to start them.
URI’s endowment has recovered somewhat, totaling about $82 million as of June 30, but Glen Kerkian, president of the URI Foundation, is still signaling caution, especially in light of recent stock market setbacks.
This year, foundation officials decided they could only stomach a $2.5 million contribution to the school operating budget, or about 3 percent of the endowment value.
“We’re in a new dynamic here in the sense that the projections on returns on investments are so conservative that we really have to adjust our thinking in terms of how much of a payout we can make and still have that second mission of retaining the value of our principal,” Kerkian said.
“We definitely have ramped it down,” Kerkian said of this year’s endowment payout. “But that’s just good management considering the uncertainties of the market.” •
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