Emory Report
February 2, 2009
Volume 61, Number 18



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February 2
, 2009
Universities’ endowments drop

By Nancy Seideman

Higher education endowments reported an average rate of return of -3.0 percent for the fiscal year ending June 30, 2008, according to a survey released Jan. 27 by the National Association of College and University Business Officers (NACUBO). In absolute terms, Emory’s endowment declined by 1.6 percent for this time period.

The results of a follow-up survey of 435 institutions show that endowments’ investment returns fell an additional 23 percent from July to November 2008, when virtually all investment markets tumbled around the world and the Standard & Poor’s 500 index fell 43.4 percent.

Through June 30, Emory maintained its relative standing among the select group of American universities with billion-dollar endowments, standing at $5,472,528. Emory was ranked in 16th position — one place behind Duke and one place ahead of Cornell, a slight rise from fiscal 2007 when Emory came in 17th. The survey includes data from 796 colleges and universities in the United States and Canada.

Emory’s endowment experienced a negative return of approximately 20 percent between July and December. This return does not include Dec. 31 valuations for private markets, which will not be available before March. Once the Dec. 31 valuations for private markets are in, the University expects further declines.

In a Jan. 22 letter to the Emory community, President Jim Wagner noted the impact of the lost investment revenue on the institution. “What the world is experiencing is no passing storm; it is an economic climate change. Volatile markets illustrate the serious structural nature of the challenges confronting us. But we are experiencing more than just a market-driven recession…” wrote Wagner. “…We must take account of these new economic realities and adjust accordingly in order to continue to pursue the leadership to which we are called as a top-tier research university.”

“To say this has been a challenging year for investment managers everywhere would be a severe understatement,” said Mary Cahill, Emory’s vice president for investments and chief investment officer. “Although this is very painful, we have worked hard to mitigate our losses in a period of global financial turmoil. ”

According to NACUBO, while the results of the 2008 national endowment survey and its follow-up survey detail a period of great challenge for college and university endowment managers, the study also shows that college and university endowments continue to realize a 6.5 percent average 10-year rate of return, outperforming market indices.

“This year’s results remind us of the importance of taking a long-term view in assessing endowment performance. Past national endowment survey reports show that endowments fell 3.5 percent in FY01 and 6.2 percent in FY02 before enjoying several years of double-digit average returns prior to FY08,” noted John Walda, NACUBO’s president and CEO. “Further, it is a testament to the skill of campus managers that colleges and universities have fared better than the 13.1 percent decline that occurred in the Standard and Poor’s 500 Index in FY08.”

The total net change in the value of endowments is determined by adding the rate of return earned by investments along with gift contributions, and subtracting withdrawals for spending — which have averaged close to 5 percent in recent years at Emory.

Changes in endowment value, consequently, reflect not only the performance of invested funds in the market but also an institution’s relative success in fundraising and how actively the endowment earnings are drawn down to support spending, as opposed to being reinvested. Emory in September publicly launched a $1.6 billion fundraising campaign, which is designed, in part, to secure new endowment gifts.

Like most other billion-dollar endowments, Emory’s investments are allocated across a broad spectrum of activities, including publicly traded equities (stock markets), fixed income (bonds and other securities), real estate holdings, cash, hedge funds, private equities, venture capital, natural resources (such as timber, oil, and natural gas), and a variety of other instruments.