US University Endowments Taking a Big Hit. (January 1, 2009)

New York's Yeshiva University with a student body of 6,500 of which just over 50% are post graduates has (had) an endowment at peak value estimated to be US$1.4 billion. Quite apart from the average 40% dive of the share market it had 8% of the endowment invested with Bernard Madoff, some US$110 million, which was sunk into his Ponzi fraud.

A ring around by Nature's Eric Hand has found that US university funding based on endowment earnings has taken a big hit and university CFOs are working to minimise the effect on their universities' operations. John Walda, president of the Washington, D.C. based National Association of College and University Business Officers (NACUBO) told Mr Hand: "It's a very big problem; a good number [of endowments] are seeing about a 30% decline since last year."

Harvard admitted that between July and November 2008 the value of its US$36.9 billion endowment had dropped 22% and has yet to bottom out. Yale's US$22.9 billion has lost 25% since July.

Mr Hand points out that through the 1990s and into the 21^st century the well endowed universities have become increasingly dependent on endowment earnings. For example: "Ten years ago, Harvard's endowment paid for a third of the operating budget of the school of arts and sciences; now it covers more than half of the $US1.16-billion budget."

John Nelson, an analyst with Moody's in New York says: "The tough choice that endowment managers face now is, 'when are we going to be forced to sell some of these assets in the down market?'" And The New York Times and The Wall Street Journal report that Harvard is "already trying to sell assets off for far less than they had been worth".

Stanford University's president, John Hennessey announced recently that his university will reduce it's spending by 5% in 2009 through rescheduling new construction, limiting salary increments and instituting some redundancies.

Mr Hand also reports: "a survey released on 18 December by the National Association of Independent Colleges and Universities, [shows] half of the 371 college and university presidents who responded reported freezing new hiring. In addition, 22% reported freezing salaries, and more than two-thirds were planning to raise tuition fees for the next academic year". These measures are the result not only of the reduced value of endowments but also the overall financial downturn, and the public universities, most of which have quite small endowments, are feeling the effects as well.