June Was A Brutal Month For Local Endowments | College finances feel the heat from a shaky economy
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Jeffrey Solomon, WPI.
To find out how local college endowments fared over the last year, one need only ask a simple question: Did the school’s fiscal year end May 31 or June 30?
If the fiscal year ended May 31, the school most likely posted a gain for its investment portfolio. If the school was unlucky enough to have a June 30 end date, the result is probably less rosy.
Calendar Year
“The month of June was not kind to portfolios,” said Christian McCarthy, executive vice president for finance and administration at Assumption College. In fact the S&P 500 — which is used as a standard measure of stock market performance — lost 8.6 percent in June and more than 15 percent from July 1, 2007 to June 30, 2008.
McCarthy, a former Wall Street banker, said that the investment portion of Assumption’s endowment grew a modest 2 percent in the last year, thanks in part to the fact that its fiscal year ends May 31. If he had to throw June’s return into the mix, the results would have been very different. The school’s endowment totaled $72 million at the end of May. But by the end of June, the portfolio was worth only $69.6 million, a drop of 3 percent.
The curse of June was felt by two local schools — Worcester Polytechnic Institute and the College of the Holy Cross — due largely to their financial calendars.
In WPI’s case, its fiscal year ended June 30 with a whimper. Its investment return was a negative 0.8 percent. But for Jeffrey Solomon, the school’s executive vice president and CFO, the result wasn’t too much of a disappointment given the median return for endowments and foundations was a negative 4.7 percent, according to the Wilshire Trust Universe Comparison service.
At Holy Cross, which had a negative 2.5 percent return for the fiscal year, the month of June alone accounted for a 4 percent loss, according to William Durgin, the school’s chief investment officer.
“If we could have ended in May, I would have been a happy camper,” he said.
Crimson Tide
But June didn’t cause all college endowments to lose value. The whiz kids at Harvard University reportedly managed an investment return of between 7 and 9 percent, according to an article in the Wall Street Journal.
The $35 billion endowment — the largest of any college in the United States — apparently bet big on commodities, including timber and farmland.
Of course, it wasn’t just Harvard that saw commodity prices as a solid bet.
Many schools invested heavily in timber, oil and other raw materials. Durgin said Holy Cross did have a relatively modest investment in commodities, but not too great a stake.
“We were somewhat reluctant to get in at the top of a market,” he said.
Another bright spot over the last 12 months has been treasury bonds, according to Solomon at WPI. While the housing crisis has knocked the wind out the economy’s sails, more investors are finding solace in the safety of federal bonds.
“The institutions that had an allocation to treasuries did better than the ones that did not,” Solomon said.
Despite the market’s volatility, local college endowments have remained steadfast in their investment approach, including Clark University, which ended its fiscal year on May 31 with a 4.9 percent investment return.
Jim Collins, the school’s executive vice president and treasurer, said its strategy for several years has been to steer clear of direct stock investments and rely more on “hedge funds, private equity firms and real assets.”
Although results for the most recent fiscal year might be disappointing, all college endowments are looking at the long-term rather than the short-term.
“The advantage endowments have versus individual investors is that this is a perpetual portfolio that we are managing over a 50-year time horizon,” said McCarthy at Assumption. “Whether we’re up or down today, we’re not going to dramatically change our strategy…This money is really for people that haven’t even been born yet.”
But in the short term, McCarthy is not confident about how the stock market will fare.
“I think the capital markets are going to continue to be in disarray and I don’t think all the bad news is out yet,” he said.
And the bad news doesn’t make the job any easier for college investment officers.
“This is definitely not a calming market environment,” said Collins at Clark. “There’s nothing calming when you see this kind of volatility.”
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