Universities put on push to rebuild endowments
Institutions also employ investment diversification to protect finances
By SHANNON MORTLAND
4:30 am, October 12, 2009
After losing millions of dollars as the stock market crashed last year and the recession dragged on, local universities are working to make sure they have more cash on hand for their operating needs and are becoming more creative with their investments as they seek to rebuild their endowments.
College investment officers are considering options that range from diversifying where they put their short-term cash to investing their money in new, nontraditional opportunities closer to home.
“We're playing offense,” said Sally Staley, chief investment officer at Case Western Reserve University. “We're definitely not sitting here licking our wounds.”
CWRU suffered a 20% drop in its endowment, which fell to $1.41 billion on June 30, 2009, from $1.78 billion a year earlier, Ms. Staley said. The endowment has climbed with the market over the last few months, but the school's commercial real estate holdings still haven't fully rebounded. “Commercial real estate has been a significant investment for Case,” Ms. Staley said. “It hit us hard in terms of declining value.”
Donors helped soften the blow of the recession by contributing $109 million in the fiscal year that ended June 30 — the second highest amount of money CWRU has ever raised in one year — which helped pad the endowment a bit, Ms. Staley said.
Cleveland State University has turned to supporters as well and raised $13.5 million in the fiscal year that ended June 30, which is 42% higher than the $9.5 million it raised in fiscal 2008, said Peter Anagnostos, executive director of the Cleveland State University Foundation and vice president for advancement at Cleveland State.
Since coming on board two years ago, Mr. Anagnostos convinced the university's board of trustees to add $2 million over two years to the development office's $2 million annual budget. The change enabled him to hire more development officers to find and target graduates of certain colleges within the university in the hope of securing more donations for the endowment.
Mr. Anagnostos said he hopes the added attention paid to fundraising will help boost the endowment to $50 million by 2014. The endowment reached a high of $45 million in early 2008 and is back at that mark after falling to $34.7 million last March because of the sagging stock market, he said.
Cleveland State also is looking for alternative investments to help plant the seeds for a healthier endowment in the future, Mr. Anagnostos said. For example, the university recently bought the Downtown YMCA building for $1.79 million, which will bring in rental revenues, much of it from Cleveland State students who already live there.
Mr. Anagnostos said he also is talking to developers about renting space the university owns to small businesses that are established or are just starting. Such deals could give the university a small stake in the business and, if a business takes off in the future, the university would benefit from the profits. Any money coming back into the university would be put into its endowment, he said.
“We just want to start putting our money more locally, on campus for our students and for our faculty,” Mr. Anagnostos said. “We're just trying to think much more creatively about how we go about our business.”
Banking on more banks
Universities were hit with a dose of reality a year ago as the market tanked and they suddenly didn't have access to cash, so some schools now are staying more liquid than they once did. Among them are Baldwin-Wallace, Oberlin and Ursuline colleges.
Oberlin had about $7 million invested with the Common Fund for Short Term Investments when its trustee, Wachovia Bank N.A., announced in September 2008 that the fund would be terminated and the assets distributed when the securities in the portfolio matured at later dates. Until then, universities had no access to the short-term cash they had placed in the fund. Commonfund of Wilton, Conn., managed $9.3 billion in investments for thousands of nonprofit institutions.
That situation meant Oberlin had to find another way to make payroll and bond payments several days later, said Ronald Watts, Oberlin's chief financial officer. The school had the cash in other accounts but it still learned a lesson, he said.
“We absolutely changed our processes because of that,” Mr. Watts said. “We definitely diversified.”
Instead of putting all of Oberlin's short-term money into one account, it is now spread among six different investments at three different banks, Mr. Watts said.
Ursuline also is “thinking more seriously about liquidity” than it had in the past to protect itself from being affected by future problems similar to that with the Common Fund, said David Steiner, Ursuline's vice president and chief financial officer.
Though the college wasn't hurt by the Common Fund's shutdown, Mr. Steiner said, Ursuline officials “wanted to make sure that when we wanted to spend money from the endowment fund, we had some liquidity.”
While many colleges annually revisit their endowment investment policies and their portfolios, CWRU's Ms. Staley cautions schools not to become too hasty and remove themselves from the market.
“We're all still very defensive,” she said. “(But) we have to be positioned to participate no matter what's thrown at us.”
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