With extremely poor economic conditions, universities across the country have experienced losses in their endowment funds, and the University of Wisconsin is no exception.
“Our endowment is down about 20 percent from January through October,” said David Erickson, chief investment officer with the UW Foundation. “That’s a fairly substantial drop for us.”
Endowments, which are monies gifted to universities by individuals or income from private sources, are often invested in stocks or real estate, according to UW professor emeritus Jacob Stampen, an expert in higher education finance.
“[There are] all kinds of reasons for private individuals giving gifts to their alma maters,” Stampen said. “And then (universities) invest that money in order to expand it so they can have resources to do any number of things.”
The UW endowment is invested in U.S. and international stocks, real estate, commodities and corporate bonds.
While these investments have seen poor returns in 2008, Erickson said UW has financial policies that serve the campus well in tough economic times.
According to Erickson, every year, on average, 4.75 percent of the endowment is made available for the deans and university to spend. But not all of that current 4.75 percent will be spent.
“What we do is we average the endowment for the last three years and spend based on that amount,” Erickson said. “In really good times, you’re not spending as much as you might be able to, but then in down periods, you spend a little extra.”
This formula helps prevent a sharp decrease in endowment spending from one year to the next, Erickson said. Instead, the UW campus will experience a smaller, more gradual decline in endowment spending.
UW’s loss in endowments is consistent with a trend seen at other Big Ten universities as well.
“We believe that, on a preliminary basis, we’re off a little more than 20 percent since the first of the year,” said Brad Hatfield, senior vice president of administration at the University of Illinois Foundation. “Most of us hope that we … see some stabilizing in the markets.”
Erickson said many universities operate with a fiscal year beginning June 30 and runs through the end of September or October.
While returns on UW endowment investments are down around 20 percent from January, returns since June 30 are down about 16 percent.
The University of Minnesota reported a decline of 9.7 percent for the 12-month period Sept. 30, according to Martha Douglas, director of communications at UM.
“We wouldn’t be surprised if there were additional declines beyond that,” she added.
The University of Michigan released a statement Dec. 1, citing it has not incurred any serious downfalls in terms of finances.
“Our investment, debt and cash management policies are structured to withstand significant volatility in the financial markets,” Tim Slottow, executive vice president and chief financial officer at University of Michigan, said in a statement. However, The Michigan Daily reported on Nov. 25 that gifts to the university from GM, Ford and Chrysler have been significantly trimmed back.
Considered major benefactors, with Ford giving $4.4 million in 2005, GM contributing $2.5 million in 2007 and Chrysler donating $476,000 in 2008, the companies have downsized to approximately $275,000 in donations this fiscal year, according to the article.
While Erickson expects the economy to show poor numbers in the coming months, he is hopeful the economy will rally in the second half of 2009.
“We could see positive returns in 2009,” Erickson said. “There [are] a lot of things that we’re purchasing and investing in right now [at] unbelievably low prices. I don’t know if they’re going (to) rebound next year, but I think someday they will, and we’ll see a lot of the losses we’ve experienced come back.”
