In a slumping economic climate, the University has not been alone in suffering severe endowment losses, according to a new report of 796 schools released Monday. At the same time, though, the University’s endowment is still out-performing many other higher education institutions’ because the University’s has remained the country’s 20th largest rather than dropping in the rankings, stated Leonard Sandridge, University executive vice president and chief operating officer, in an e-mail.
“The economic downturn hurt everyone,” Sandridge stated, citing the report by the National Association of College and University Business Officers. “No one institution was singled out. All of our peer institutions experienced similar endowment losses ... more than 400 institutions had investment returns that had dropped more than 20 percent.”
The long-term investment pool managed by the University Investment Management Company saw a 26-percent loss in value from July through December last year, University spokesperson Carol Wood said. That equates to a decline from $5.1 billion as of June 30 to $4.7 billion as of Sept. 30, to $3.9 billion as of Dec. 31, Wood noted. Harvard University, which topped the report’s endowment listings at $36.5 billion as of June 2008, and other top — primarily private — higher education institutions also reported significant losses during the same time period. According to a Harvard press release, that institution’s endowment lost approximately 22 percent from July 1 through Oct. 31.
Though other schools might suffer similarly, Sandridge stated that the University’s endowment has performed admirably considering the circumstances.
“Many of the institutions ranked above us are private institutions with endowments that have existed for many generations and have long histories of philanthropic giving,” Sandridge stated. “The University of Virginia came late to this environment because we relied so heavily on state support. When state support began to diminish, it became clear that in order to retain our excellence — and in fact build on it — we would have to rely more heavily on additional revenue streams and build an endowment that would allow us to plan for the future.”
Though the University’s endowment has seen recent losses, Sandridge and Wood both noted that they consider the growth of the University’s endowment a success because of how far the endowment has come in a relatively short period of time. Using a conservative, long-term approach to investing, the UVIMCO staff has been actively seeking to grow the University’s endowment without creating undue risk primarily since the mid 1990s, Wood said, whereas private schools such as Harvard, “have had to rely on their endowments and know the value of aggressive fundraising campaigns much earlier on.”
That conservative approach, though, is a smart one, Sandridge and Wood added, and it is one that has allowed the University’s endowment to survive — and even grow — in tough economic times marked by a fluctuating stock market and state budget cuts.
“It would be nice if we could look into a crystal ball, but since we cannot, the staff of UVIMCO is watching the global economy, the markets and even our national political arena moment to moment to help them assess what they need to do in regards to placing the University in the best possible position for recovery,” Sandridge stated.
Increasing financial strain, however, has forced the University to rely more heavily on its endowment despite losses. Last June, the University’s Board of Visitors increased the percentage of the endowment that can be spent from 4.5 percent to 5 percent. That means $163,634,000 of the University’s $2 billion budget will come from the endowment during fiscal year 2008-09, Wood said, also noting that the Board may consider increasing or decreasing the allowed distribution, within limits, at this June’s meeting.
Endowment losses and potential payout changes will not, however, affect the University’s day-to-day operations nearly as much as the commonwealth’s pending budget cuts for 2008-09 and 2009-10, Wood stated in an e-mail.
Gov. Tim Kaine proposed a 2009-10 budget reduction of 8 percent, Wood stated, on top of the proposed 7-percent cut for this fiscal year, for a total $23 million reduction in funding for the University. If the reductions are approved, everything from tuition rates to capital renovation projects to Medical Center revenues could be more affected by the cuts than by endowment losses, Wood added, especially because there is no guarantee that state legislators will not approve more extensive cuts.
Though endowment losses and budget cuts may have a negative impact on certain programs and services, Sandridge and Wood said the University remains poised to continue pursuing its institutional goals. Meanwhile, smart fiscal management practices and continued fundraising efforts will be required to navigate the downturn successfully.
“While this is the worst economic downturn that I have experienced in my time at the University, I know that the University is a stable institution that will survive an economic crisis and emerge a stronger organization,” Sandridge stated.
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