University Endowments Drop With Markets Across Country

The market roller coaster has taken universities around the country for a wild ride--with, perhaps, a few more loops in store--leaving its reluctant passengers bruised and battered but, many say, fundamentally unhurt.

As Wall Street plunged, rebounded and plunged again recently, endowments at schools around the country dropped by six to ten percent, universities say.

But university investors say the strong markets of the past few years and the consequent record-breaking endowment growth have provided "cushioning" to soften the affects of this year's bumpy ride.

Of the five universities which boasted the highest market values in 1997, according to the National Association of College and University Business Officers endowment study, three schools have announced decreases in endowment value since the mid-summer market dive that made U.S. stocks lose $2 trillion in value.

Harvard tops the pack, both in overall endowment value and in percentage decrease. Over the last two and a half months, Harvard's endowment, quoted at an all-time high of $13 billion in June, has lost $1.3 billion, or ten percent of its value. The Boston-based Harvard Management Company (HMC), the University's wholly-owned subsidiary which manages Harvard's investments, released these statistics in its annual letter two weeks ago.

Following on the heels of five consecutive years of higher-than-expected endowment growth, the drop over the last two-and-a-half month period was three percentage points below HMC's benchmark. The group forecasted a drop of 7 percent.

Because Harvard failed to meet its benchmark, Jack R. Meyer, president and chief executive of HMC, says he is not "surprised" that Harvard's endowment dropped by a larger percentage than endowments at some other schools.

Princeton University's endowment, ranked fourth among private universities in 1997, fell 6.5 percent, or $357 million, during July and August, the Daily Princetonian reported last week. The endowment is currently valued at $5.5 billion, less than half the value of Harvard's.

August was "the second worst month in the past 50 years," Andrew Golden, president of the Princeton University Investment Company, told the Daily Princetonian.

Stanford University, whose endowment ranked fifth in value in 1997, also felt the tremors of market fluctuations. The endowment, now estimated at $4.5 billion, lost about 10 percent of its value in August, according to Mariann Byerwalter, vice president of business affairs and chief financial officer for the university.

The University of Pennsylvania announced a week and a half ago that its endowment, valued at $3 billion, dropped 10 percent, or $300 million, over two months, the Daily Pennsylvanian reported.

Yale University, ranked third in 1997, has not released endowment figures for the past few months. Yale investors speculate, however, that the school may be more immune to market ills than other universities. "We may be somewhat more insulated from changes than other schools because we only have one-third [of our endowment] invested in the stock market," said Cynthia L. Atwood, a spokesperson for Yale. "We have a very diversified portfolio."

Atwood says the university has invested large portions of the endowment, reported at $6.6 billion in June, in real estate. Yale's complacency may be misplaced, however. Stanford also has significant investments in real estate. And although investors say they have cushioned the blow, diverse portfolios have not saved Yale's competitors from the market drops.

Many of the universities affected by the market fluctuations have investments in emerging international markets, domestic stock and hedge funds--three areas hit hard by the market plunge.

Cornell University's endowment dropped 7 percent from the end of June to mid-September, bringing the value of the endowment from $2.4 billion to $2.23 billion, according to Cornell Chief Investment Officer James S. Clarke.

Cornell has invested heavily in domestic common stocks and has about 11 percent of its endowment in hedge funds, Clarke says. Both of these investments can prove more risky than common bonds and cash.

Brown University's endowment has decreased by 10.3 percent from June to August. Mark Nickel, a spokesperson for the school, says Brown investors blame the decline partly on the funds that the school has put in emerging markets.

Dartmouth College has large equity investments to which the college's investors attribute the endowment drop. In June, the endowment totaled $1.52 billion, and it has dropped 6.5 percent since then.

Jonathan C. King, director of investments at Dartmouth, says most investors with money in equities have experienced losses. But he says he takes the long-term view. "Over time, if you measure performance of things like equities over 10 or 20 years, they outperform bonds and cash. It makes sense to be invested in things like equities," he adds.

Investors at most of the other Ivy League schools also say they evaluate their financial performance on a long-term basis and do not concern themselves too much with the day to day fluctuations. All the schools interviewed had experienced increases in endowment value from June 1997 to June 1998. None of the schools say they are planning to cut spending or change strategy, a plan market-watchers say is well-advised.

"Seven to 10 percent declines rarely will affect the financial health of a university in the short run," says John C. Nelson, senior vice president at Moody's Investors Services in New York. "This is where we are seeing the benefits of being prudent."

In fact, Nelson says, value drops of only seven to ten percent are "not bad" considering the fluctuations of the markets. So, investors agree, the key is to sit tight and hope for the best.