University Endowments Sink, but School Execs' Salaries Rise

University endowments experienced their worst declines since the Great Depression in the fiscal year that ended June 30, 2009, dropping 18.7%. The steep losses were primarily the result of risky investments, according to a study released Thursday by the National Association of College and University Business Officers and the Commonfund Institute.Those losses contrast sharply with another trend in higher education -- rising salaries for university officers. In November, Sen. Chuck Grassley (R-Iowa) expressed concern about the growth of college presidents' salaries, which he noted were increasing even at a time when students and their families were struggling to pay tuition bills.

In Sen. Grassley's statement, issued in November, two months before the NACUBO-Commonfund Study was released, he said: "The executive suite shouldn't be insulated from belt-tightening. The pressure on students and families gets greater all the time. The fact that these salaries are growing right now is out of sync with the reality for most parents and students who are trying to pay for college in the midst of high unemployment and after savings for education were either wiped out or greatly diminished last year due to the stock market falling."

Based on the losses reported in the NACUBO-Commonfund Study, it appears that universities will need to tighten their belts as well. The study looked at 842 endowments: You can see if your school was one of them at the NACUBO website. Harvard took the biggest hit: It lost $10.9 billion or 29.8%, dropping its endowment's market value to $25.7 billion. Yale wasn't far behind with a decline of $6.5 billion or 28.6%, as its endowment slipped to $16.3 billion.

Turned Too Aggressive

While the period in question saw asset values decline across the world due to the effects of the financial crisis and the recession that followed, the magnitude of universities' losses was exacerbated because many educational institutions had turned to aggressive strategies to increase their returns. In June, NCSE looked at the dollar-weighted assets of participating universities and found that 51% of their portfolios were invested in alternative strategies, 18% in domestic equities, 13% in fixed income, 14% in international equities and just 4% in short-term securities or cash.

That 51% in alternatives strategies lost on average 17.8%. Within the alternative strategy, the mix averaged 21% in private equities (including leveraged buyouts, and M&A funds); 43% in marketable alternative strategies (including hedge funds and derivatives); 12% in private-equity real estate (non-campus); 12% in energy and natural resources (including commodities and managed futures); 7% in venture capital; and 5% in distressed debt.

Those alternative strategies may have been losers, but on the equity side, the results were even worse. International equities lost 27.6% and domestic equities lost 25.5%. Only those universities that stuck with more conservative investment plan actually made money. Fixed income generated an average 3% gain, and short-term securities/cash returned 0.8%. Institutions with smaller endowments fared better than those with larger ones, with the top earner, the University of South Alabama, up 30.1% to $95 million from $73 million in fiscal year 2008.

Gifts in Decline, Too


Commonfund Executive Director John S. Griswold said in statement: "Many educational institutions have taken steps to adapt to the realities imposed by endowments that have been buffeted by losses averaging nearly 20%. Future NCSE reports may well reflect fairly significant changes in investment management, spending, debt practices and governance policies.

In addition to suffering from investment losses, universities also faced a median decrease in gifts of 45.7%, with 60% of the responding institutions reporting a decline in gifts in FY2009. Only 26% reported an increase in gifts. The study also found that 43% of the institutions increased their spending rates even as their endowments lost value in order to to maintain programs and services.

Yet salaries for university presidents went up. For the 2007-2008 fiscal year (the last one for which data is available) presidents at private colleges and universities saw their median pay increase by 6.5% to $358,746, according to The Chronicle of Higher Education's annual executive compensation survey, published in November 2009. By that point, the downturn was already under way: That fiscal year, higher education endowments reported an average rate loss of 3%.

The survey's details note that presidents at major private research universities saw their median pay increase by 15.5%. It also pointed out that some of colleges are paying their former officers high salaries. Meanwhile, 58 private colleges now charge more than $50,000 a year in tuition, room, board, and fees, compared to only five the year before, according to the Chronicle.

"It's stunning that so many schools are paying high six-figure salaries to former officers," Sen. Grassley said. "You wonder if these colleges are giving away the store when they sign contracts with employees. A college's mission as a tax-exempt entity is to educate students, not subsidize former employees."


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