- The Washington Times - Tuesday, January 21, 2003

The average college endowment shrank by 6 percent last year, turning in the worst performance since 1974, according to a survey released today by the National Association of College and University Business Officers.
The decline is a stark contrast to the investment boom of the 1990s and a financial blow at a time when many public schools are losing state aid. It is the first back-to-back decline since the Washington-based NACUBO began its survey in 1971. The 2001 survey showed an average decline of 3.6 percent.
Belt-tightening is evident at schools such as Boston University, which is laying off faculty, and tiny Hillsdale College in Michigan, which is cutting four varsity sports teams. Wealthy schools such as Dartmouth, Duke and Stanford have also been forced to cut costs.
"It's forcing academic leadership throughout the country to really think about what's most important," said Scott Malpass, vice president and chief investment officer at the University of Notre Dame, where the endowment fell almost 10 percent, to $2.55 billion, in fiscal 2002.
"Some of it's healthy, but on the other hand, it's a tremendous challenge."
Endowments include stocks, bonds, cash and real estate that colleges and universities receive as gifts. Schools may not spend the endowment principal, only investment income derived from the principal. Endowments provide funds for expenses such as financial aid, faculty salaries and other operating costs.
The latest survey of 660 higher-education institutions showed that an average school's investments, not accounting for donations and spending, lost 6 percent in 2002. The best-performing endowment earned 10.1 percent; the worst lost 19.8 percent. NACUBO did not identify the schools.
Richer schools tended to do better than other universities. Schools with an endowment of $1 billion or more lost an average of 2.1 percent, while schools with less than $25 million lost an average of 6.1 percent, the survey showed.
At Harvard the world's richest university with $17.5 billion the endowment did well, finishing last year down 2.7 percent.
Colleges typically spend 4.5 percent of the market value of their endowment each year. However, the 6 percent decline outperformed all of the major stock market indexes.
And although the bear market has made it more difficult to raise money, two-thirds of the institutions said they expected donations to be at least as strong this year as last, according to another study released last month by Connecticut-based Commonfund Institute. Commonfund's results matched NACUBO's latest findings.
Many schools are also refinancing debt at lower rates.
School officials insist recent losses are a small price to pay for the enormous gains from 1992 to 2000, when endowments saw double-digit investment growth every year but one, according to the NACUBO. Those gains funded scholarships, research and an unprecedented campus building boom.
"You had the greatest expansion probably in the history of higher education in terms of scholarship aid, new facilities and new programs," Mr. Malpass said.
For now, most such projects are on hold. A few schools have laid off faculty members. Many are reducing staff through attrition.
Illinois Wesleyan University, whose endowment fell 22 percent, to $136 million, will have $3 million less to spend this year than it projected in 2000. The school has frozen departmental budgets, is slightly accelerating tuition increases and is dipping into some gifts it would typically set aside to prop up the endowment.
"We've slacked off on some of the technology stuff, building smart classrooms, that kind of thing," said Thomas Corts, president of Samford University in Birmingham, Ala., where the endowment is $218 million after losing 19 percent of its value last year. But he said he doubts students will notice the effects.
Those that invested aggressively say they have no regrets.
"We still want to be in the equity market. We recognize that in the long term that's the best place to be," said Ken Browning, vice president of business and finance at Illinois Wesleyan, which bet heavily on stocks. "Universities are the ultimate long-term investors."
Ellen Sorokin contributed to this report.

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