Endowment Falls 25.5%; Rises in NACUBO Rankings
Georgetown’s endowment took a 25.5 percent hit for calendar year 2008, leaving a total of $833 million as of Dec. 31, according to officials in the university’s investment office.
The economic downturn caused a 14 percent drop in the endowment since the last quarter ending Sept. 30, when it stood at $964 million – a 9.5 percent drop from the $1 billion mark first attained in 2007.
The losses illustrate that the university is not immune from the ravages of the current economy, but university investment officer Larry Kochard says a combination of factors have worked in Georgetown’s favor -- reducing exposure to public equity, avoiding hedge fund blowups and maintenance of liquid assets, such as cash contributions. All have softened the blow of the financial crisis, he says.
“What we’ve been focused on, really starting last year, has been trying to improve our liquidity, which is very good compared to other universities. Some universities have really gotten themselves in a bind, but we have the liquidity to meet the payout to the school as well as other commitments that we’ve made,” Kochard says, referring to Georgetown’s 6-percent spending rule of the endowment for operating expenses.
At a town hall meeting last month President John J. DeGioia also noted that Georgetown relies much less on its endowment than other universities. Georgetown’s endowment funds approximately 5.7 percent of the university’s annual operating costs compared to, for example, Yale University with 44 percent and Harvard University with 35 percent. Both universities have much larger endowments, but also lost billions in recent months.
The latest endowment numbers come on the heels of the university’s No. 71 ranking by the National Association of College and University Business Officers (NACUBO) Endowment Study, released Jan. 27.
Each year NACUBO surveys the endowments of institutions across the nation -- including a few international ones -- and ranks them according to dollar amount at the end of each fiscal year. Georgetown rose two spots from last year’s No. 73, and it ranks No. 46 among independent institutions.
“Your relative movement on the list is always a combination of three things; it is the return, the contributions to the endowment and it’s the payout from the endowment,” says Kochard.
Higher education endowments reported a minus 3 percent average rate of return for the 2008 fiscal year ending June 30. Georgetown fared slightly better since the amount from June 30, 2007 to June 30, 2008 was relatively unchanged. The endowment still totaled a little more than $1 billion at the end of the 2008 fiscal year.
But due to the current economic crisis, the university saw a 21.4 percent decrease from July to November, the first five months of fiscal year 2009. That decrease compares to the 22.5 percent average loss in returns, according to NACUBO.
The organization conducted a follow-up study with 435 of the 796 institutions that participated in the endowment study – including Georgetown.
“This year’s results remind us of the importance of taking a long-term view in assessing endowment performance,” John Walda, president and chief executive officer of NACUBO said in a statement. “Past (NACUBO) reports show that endowments fell 3.5 percent in FY’01 and 6.2 percent in FY’02 before enjoying several years of double-digit average returns prior to FY’08.”
Kochard believes there will be an economic bounceback in the next few years, but nothing resembling returns from previous years.
“The markets tend to overreact on the up side as well as the down side. So, you’ll always see these snapbacks that occur,” he says. “However, what we see in this market downturn has really coincided with the economic downturn, which is the most severe we’ve seen probably since the Great Depression; and it’s truly global. There will be opportunities to make money, but it’s unlikely that we’ll see the same kind of bounceback we saw earlier this decade.”
During last month’s town hall, DeGioia said he and Chris Augostini, chief financial officer and university treasurer, are working with board members and campus leaders to plan budgets that preserve cash and allow flexibility to respond to continued economic uncertainties, particularly families’ ability to pay for college and access affordable credit. He announced salary freezes for himself and senior leadership and outlined several steps Georgetown is taking to weather the economic climate -- more conservative spending, slowing investments in private equity markets, increasing cash liquidity, restructuring university debt, delaying capital projects and planning to become a direct lending institution.
“This is a time of almost unprecedented economic uncertainty, challenge and difficulty -- a time which is leaving no institution, academic or otherwise, untouched, unaffected or untested,” DeGioia said. “The fundamental issue is to ensure that we are able to meet the expenses we incur operating Georgetown University.”
(February 9, 2009)
