There is no doubt the investment strategy was reckless

Lafalum · There is no doubt the investment strategy was reckless

The Chronicle of HIgher Education reports today that the average percentage invested in alternative investments in college portfolios was 19.4%. The average invested in Hedge funds was 12.9%. For us it was 53 pct in alternative investments and 41 pct in hedge funds alone.
This was a reckless strategy that will cause a hardship on the students, faculty and staff for years to come. The leadership of this BOT should resign.
How long will it take to replace the 220 mio already lost!!! There is a board meeting this weekend. Isn't it a least time to fire the guy we are paying 1/2 mio per year?? Enough pap from the Bot and this adiministraton of how diversified and balanced we are. NO MORE LIES.

TheTruth

Lafalum: Is the total loss to the endowment $220M? Or is that the amount from September? That's about 25% loss from $900M.

The reason i ask is the Chronicle of Higher Education had an article that shows many colleges lost 3 % on their endowments through June 2008 (end of fiscal year 2008) and then lost 22% the next five months.

It seems like we are in line with most schools.

Lafalum

I don't know where the 900 mio comes from. The 2008 audit cited and available through the internet show a 2007 balance of investments of 742 mio, and a June 30 2008 balance of 646 mio. Using the 2007 nbr as a base that is 29.6 pct loss significantly higher than the losses with other colleges in the 500 to 1 billion size. Using the 2008 closing balance that is a 34 pct decline significantly higher in both case than the 24 pct cited by the Chronicle as the average loss for colleges our size,( who by the way were the catagory of colleges that had the largest percentage losses) If we use your 900mio nbr and compare it to the 646 audit number for the close of fiscal 2008 (June 30 2008) That means a decline in the portfolio of 254 mio BEFORE the big decline in in the July -Nov period. ( I don't believe that loss nbr)
It still doesn't mitigate our exposure to hedge funds at nearly twice the percentage exposure of the average college. Keep in mind the hedge funds are selling their liquid assets to meet redemptions. That means the current hedge fund owners will be stuck with the illiquid toxic waste.
Fifty percent of our portfolio in illiquid toxic waste gives me small comfort and it should do the same to these dorks on the BOT.
Lastly in the audit it clearly says that the assets held are difficult if not imposible to value and they were relying on the hedge fund mangers for the mark to markets. THAT GIVES ME NO COMFORT AT ALL AND SHOULDN"T to anyone who gives money to the trustees to safekeep for the benefit of future generations of students.

TheTruth

Thanks for the explanation. I understand the issue much better.

I know on the athletic department commercials they student talk about the college having assets near 1 billion dollars. Obviously that is not the case anymore.

The worrisome part is the last point which is relying on the hedge fund managers to determine the value.

I just heard tonight that Brandeis (I think) is selling their art exhibit because of the losses in their endowment.

Lafalum

Just as an aside. Harvard is now reporting its losses now are closer to 18 billion, which means a 50 pct hit to their portfolio. It has also been disclosed that their hedge fund exposure is leaving them with the illiquid toxic waste previously described. Unfortunately for higher education, we have not heard the end of this. It will take some extrordinary effort and attention to clean this mess up. My concern is that the transparency and honesty neccessary to marshall the resources to clean our own house is not there in our board..sadly.
As to the asset size, that may include buildings and grounds not just the endowment, but the endowment never did reach 1 billion. I think it was hoped that the new campaign would have gotten us there, that is not remotely posible now.
I have heard the development office was trying to concentrate on the older donors just keep our annual fund at current levels, speculating that the middle age and younger donors would be under more financial stress.
I think there are flaws in that view. Its going to be a tough few years ahead.

TheTruth

Definitely a bad strategy trying to focus on the older alumni. Rolling Eyes

How about just having an honest, open conversation with the alumni about the need to support the Annual Fund esp. this year? The donation size is not important. We need to keep people donating to the College. Too focused on dollar size.

I think we have discussed the lack of transparency by the BOT and the administration enough. I was hoping it would change with Weiss but the lack of information and communication with the alumni is frightening. It seems like they only communicate with the Marquis Society donors. Since we entered the electronic age, I would think it would be easier to communicate effectively with alumni but......

Keep fighting.

Lafalum

Actually, they have raised the amount to $1824 to now be eligible to be invited to the Marquis Society dinner. So you can now be Marquis lite for 1,000 and a REAL Marquis for 1824. ( The extent to how out of touch and unreachable these people are is amazing)

Pard4Life

Pard4Life

There will likely be a major paradigm shift in the way College manage their endowments following this mess. Did not connect the dots, but I thought that we alone were the irresponsible investors. Yale was touting its portfolio in 2007 for having invested in timer and other crazy alternatives. Pandemic classifies this nicely.

I can see institutions adopting more rigid principles. Note, I have no idea on how endowments funds structred:

1) Very limited exposure to alternatives, namely hedge funds, private equity, REITs... little, if no, commodities, derivative contracts, currencies, natural resources, structured debt
2) moderate equity exposure, divided between overseas and US
3) more reliant upon fixed income, namely US Treasuries
4) more municipal bonds? (there might be legislative hurdles)
5) divided pools... one for spending in the short-term, which would be invested conservatively... one for long-term.. like 7-10years+ which could be allocated appropriately between the usual asset classes: equities, fixed, alternatives - albeit only small % of alternatives
6) ease construction of country club facilities

This way, if the market suffers a major hit, your short term funds would not be as jeopardized and long-term funds, while taking a hit, could offer time to recover.

I think the 2000 tech bubble prevented some earlier endowment policy changes in showing people that the market can bounce back quickly and aggresively. Aside from Nasdaq, markets lost maybe 25% of their peak value, which were recovered by 2004ish... We are now off nearly half that value.. and the only way the 2000 was recovered was through a bubble. Who knows where we are headed... which is why are portfolio should be constructed to face the worst.

Also, we are letting donors down seeing this money evaporate. I'd rather see my donation invested conservatively, or used immeadiately. Sometimes I even ask 'why bother?' (then I think of how atheltics is underfunded at times)

Unless I am mistaken, I view donation drives more as an opporunity to build the endowment than help the students, since the endowment is so large to begin with. However, I think schools actually need the money now.

TheTruth

"Unless I am mistaken, I view donation drives more as an opportunity to build the endowment than help the students, since the endowment is so large to begin with. However, I think schools actually need the money now."

The donations to the Annual Fund are used each year (thus the name Annual Fund) and is part of College's overall budget. A short fall in the Annual fund has to be made up somewhere else in the budget. If it is a small shortfall, it may not be a big deal as there is normally a contingency in the budget. Multiple years of missing the Annual Fund goal or a major shortfall, you start to run into budget deficits that could potentially rob other programs. Normally the Finance folks set the goal for the Annual Fund based on the College's budget. Generally, it goes up a certain percentage based on the budget increase.

If the Annual Fund unrestricted goal is $5M (assumed number), that $5M is equivalent to an additional $100M in the endowment (assuming a 5% endowment draw). Since most colleges have seen their endowment drop this past fiscal year, many BOT are limiting their draw on the endowment which means less money for the budgets. They need the annual fund to meet their goal and exceed it if possible. My guess is most schools will have a budget deficit for 2008-09 and 2009-10 and figure out where the cuts need to be made. Yes, colleges need money now!

Gifts for scholarships, professorial chairs, and other endowed funds, feed the endowment. These restricted funds are managed along with the endowment.

Lafalum

I have heard that the diversity dean's husband can't find a job and Weis has given him a job in the Dean of Student's Office. Construction for his office is beginning in Hogg Hall. So we are asking our coaches to cut their operating budgets as much as 15% and the new dean, who we don't need comes with a husband who gets a job created just for him by the President of the College.
Your donations are supporting this!! Where is the leadership?? This is arrogance!!!
The school newspaper reports " This year, because the endowment has decreased, the school will have to take out a HIGHER PERCENTAGE of the market value to cover operation costs." We don't even know what our portflio is worth and we are drawing down on our liquid assests!!!!
They report that no one will recieve more than a 2 pct raise. Most of the cuts according to Mitch Wein (CFO) will come in "non academic areas",(athletics??)WEIN SAID THE COLLEGE'S INITIATIVE TO HIRE MORE PROFESSORS WILL NOT BE SIGNIFICANTLY REDUCED, NOR WILL OTHER AREAS RELATED TO THE COLLEGES'S STRATEGIC PLAN!! Unlike most other colleges who have hiring freezes. Wein does say in the article other instituitions have made more dramatic cuts but said the college is HOPEFUL the economy will recover before that is necessary.
Is this resposible management or are we taking a "flier"???
He said tuition would not increase as much this year as last (Last year was 7%...6% over the rate if inflation)
Oh.... Weis states in the ariticle the decline is OVER 20 pct. That's close to being a LIE. He has stated in a staff meeting and faculty meetings the decline was approaching 30 pct.