Enron collapse costs U endowments $8.3 million

by Maggie Hessel-Mial

The University’s endowment investments were not immune to the chaos and backlash of the Enron debacle, an investment company informed the University Board of Regents on Thursday.

The University lost approximately $8.3 million of its investment returns on the once-soaring, now-crashing Enron stocks.

“Enron seemed to be one of the most visionary companies of the time,” said Alfred Harrison, vice chairman of Alliance Capital, one of the investment companies with which the University works. “A lot of evidence came forward to indicate (Enron management) were misleading.”

The amount the University lost because of Enron’s bankruptcy and falling stock value is less than 1 percent of the total amount of the institution’s endowment, said Sheila Warness, University director of asset management.

The endowment investments – a combination of money from private donations and the University’s land grant investments that totals more than $600 million – are invested into a diverse portfolio of stocks. The money made from these ventures used for programs, including scholarships, research and academic support.

After the initial drop in stock prices and allegedly false information from Enron, Alliance Capital investors chose to purchase more of the stocks, a process that is typically sound when company managers are honest, Harrison said.

“This is a very sorry part of my career. It was a mistake,” Harrison said. “I hate to say I was duped, but that’s the bottom line.”

The University’s endowment returns dipped the last two years, but University officials say they are hopeful of improvement once the economy sees an upturn.

Regent Michael O’Keefe said although the Enron losses were troubling, he has confidence in the Alliance Capital investment staff.

“It was a set of investment judgements that were sound in principle,” O’Keefe said. “The company was lying to everyone in sight and they caught very honest investment managers by surprise.”

He also said he wants to encourage improving the checks and balances in the accounting system.

“This has been very painful,” O’Keefe said. “But it does not represent neglect on the part of our managers.”