November 26, 2001
U.S. economy's effects on Emory
Edith Murphree is associate vice president for administration and Mary Cahill is chief investment officer.
As most people are aware, it has been a difficult year for the U.S. economy
and the stock market. As a participant in the investment markets, Emorys
endowment has experienced the decline and volatility felt by most investors.
The overall market value of Emorys endowment declined from $4.8
billion on Aug. 31, 2000, to $4.3 billion on Aug. 31 of this year. Though
this decline reflects a loss of 10 percent from investment performance,
the performance of Emorys endowment compares favorably to market
losses of 24.4 percent for the Standard & Poor 500 for the same period.
Emorys endowment held up favorably during a difficult market environment
due to its diversification among asset classes. The endowment investments
are managed by more than 50 investment management firms in a diversified
portfolio of domestic and international equities, fixed income instruments
and alternative assets.
The goal of Emorys endowment is to seek maximum investment returns,
balanced against prudent levels of risk, in order to support University
spending for current operations and the growth of the endowment, providing
for the long-term financial integrity of the institution.
Annual endowment spending at Emory is set at a rate of 4 percent of a
three-year moving average of the endowments market value. Like most
colleges and universities, Emorys spending policy is designed to
reduce fluctuations in spending from the endowment each year and to provide
income that will meet, at a minimum, inflationary increases in costs.
The spending policy also protects the endowments value against inflation
so that it can be invested for long-term growth.
Based on current projections, the growth in endowment spending from fiscal
year 2002 to fiscal year 2003 is projected to be 0.3 percent. In the current
year, the comparable figure for growth in spending was 6.44 percent, which
yielded an estimated $5 million in incremental revenue for the Basic Education
and General Budget. Although Emory will still experience a slight increase
from endowment spending for 2003, the increase will be much less than
what it has experienced in recent years.
The Capital Matching program, a portion of the authorized spending from
endowment, is used to facilitate funding for new building construction
and the renovation of existing buildings. Emory has committed this program
to current capital projects through fiscal year 2004, but this commitment
for existing projects may need to be extended beyond that time if the
market value of Emorys endowment does not rebound. Likewise, Emory
may not be in a position to issue additional debt of any significance
until it sees an improvement in the endowment market value.
Endowment income accounts for approximately 20 percent of Emorys
Educational and General Budget and 9 percent of all operating revenue.
Other sources of income include tuition and fees, indirect cost recovery
from research funding, gifts and grants, and patient service revenue.
Endowment income is one of many factors that determine the Universitys
available resources. Emory will look to other sources of revenue growth
and the reallocation of existing resources in order to maintain scholarship
programs, fund competitive salary programs for faculty and staff, maintain
the fringe benefit program, and fund other costs subject to inflationary
Throughout the 1990s, Emory benefited a great deal from high returns
on our endowment investments; in fact, for several years Emory had the
top-performing endowment fund in the country. The Universitys endowment
has grown from $1.1 billion in 1990 to approximately $4.3 billion at present.
Emorys student application pools continue to be strong both in
terms of size and quality. In addition, funded faculty research continues
to grow in extraordinary ways: More than 20 years ago, then-President
James Laney set a strategic goal of $100 million in sponsored research
by the year 2000. Emory passed that mark in 1993 and reached almost $250
million in FY01. The University also has untapped potential in other areas
of extramural funding.
Emory sees its coming three-year planning cycle as one that should be thoughtfully planned rather than one of retrenchment. The University will continue to develop and build other revenue streams, contain costs, reallocate current resources to its highest priorities and continue on its path of intellectual growth.