U endowments hit hard by slumping global economy

Sam Kean

Due to slumping economic markets worldwide, University endowments took a big hit in the past fiscal year, offsetting five years of high growth.

At a Board of Regents presentation Thursday, assets management director Sheila Warness said the University’s Consolidated Endowment Fund decreased $122.2 million in fiscal 2001. As of June 30, the CEF held $657.3 million, and Warness said she estimated it has decreased an additional 12.3 percent since July 1.

“The numbers in the short range look pretty astonishing,” said Regents Finance Committee Chairman Michael O’Keefe. But he also said with the University’s semi-aggressive investment strategy, such volatility should be expected.

“Endowments are a very long-term investment prospective,” Warness said.

Funds in the University’s short-term reserves and CEF have returned to approximately their June 1999 levels.

Others funds, though, jumped or sagged during the past two years due to necessitated spending or market performance: the University of Minnesota Foundation funds increased about $140 million; the Basic Faculty Retirement Plan decreased $86 million and the long-term reserves dropped more than 50 percent to $42.7 million.

This year, endowed academic departments will receive approximately the same funding as last year but no inflationary boost, Warness said. They will not lose money because endowment increases in the boom period were not distributed, but saved for dips such as the past years.

But in fiscal 2003, Warness said she estimated the overall fund could lose an additional $5 million if departments continue current spending rates. That figure relies on the assumption the market will remain stable for two years.

The Faculty Senate Finance Committee was concerned, but not panicked for two reasons, said committee chairman Charles Speaks.

First, the three- and five-year return rates on the endowments are solid. “It just happens to have been a bad 18 months,” Speaks said.

Second, said Speaks, some University assets are actually up over the past two years.

The biggest effect, he said, would be on retiring faculty.

“I suspect most retirement accounts are going to be lower,” Speaks said, forcing some to reconsider whether to retire this year.