Thursday, October 25, 2001

Bear market bites TCU endowment
Losses may cause decrease in spending, officials confident in recovery
By John-Mark Day
Staff Reporter

A downturn in the stock market that began in Spring 2000 has vaporized $89 million from the TCU endowment, forcing the university to re-examine investment and spending policies for the coming future.

The most recent economic slump, brought on by the Sept. 11 terrorist attacks, did little harm to the endowment, university officials said. By that time the endowment had already been moved into a defensive position, Carol Campbell, vice chancellor for finance and business said Wednesday.

Campbell said 10 percent of the endowment had been moved from the stock market and re-invested to absolute return strategies, such as bonds and other interest-bearing securities, after posting an $89 million loss in the 2000-2001 business year.

“Absolute return strategies generate positive return no matter what the market does,” Campbell said.

The endowment constitutes a trust of financial holdings of the university, both landed and monetary. As a part of each annual budget, TCU spends a portion of the returns generated on the part of the endowment invested.

“You plan never to spend the original body of money,” she said. “You generate sufficient returns that you’ll be able to cover your spending and cover inflation.”

For the June 1999 to June 2000 business year, the endowment was $922 million, but by June 200 it fell to $839 million, Campbell said. As a result of the losses, more of the endowment was allocated into bonds and other guaranteed investments.

Nationwide, the top 25 university endowments are over $1 billion, The Chronicle of Higher Education reported. Harvard University has the highest endowment ($18.3 billion, while TCU’s endowment of $839 million puts it above most schools listed by the Chronicle, including the University of California at Los Angeles ($460 million) and Saint Louis University ($825 million). Most university endowments are projected to lose money this year, the Chronicle reported.

Chancellor Michael Ferrari said TCU is operating without the optimism a strong economy had provided.

“This is a time to be much more cautious,” Ferrari said.

Economic forecasts for the next six to 12 months are not good, he said.

While $89 million is a large loss, Campbell said it is not a reason for concern.

“In 1995, the endowment was $475 million,” she said. “We have a long way to go to fall back.”

Campbell said the endowment increased during several years because of aggressive investment strategies. While bonds and securities pose less of a risk, they also are not as high-yield, she said.

“The market was booming there for years and years,” she said. “Had we been poised too defensively, we wouldn’t have ridden it up.”

An endowment operates on a longer time span than individual investments, a fact Campbell said helps to smooth out any changes.

“Unlike a retirement fund which has to be there by 2004, we have an infinite amount of time to lose money and then gain it back,” she said.

Even with the loss, Campbell said she does not expect endowment spending to change dramatically.

“We won’t see any sharp declines in endowment spending. We just won’t be going up,” Campbell said.

Last year’s tuition increase helped lessen the university’s dependence on endowment spending. Campbell said tuition will probably increase again this year.

“We felt very strongly we were somewhat overly-reliant on the endowment,” she said.

The loss will alter projected growth, especially in capital improvement, she said.

“As we’re looking at what we can do in the future, (the loss) pushes plans out,” she said.

Campbell said the administration had been looking at beginning to spend $10 million a year on buildings and maintenance. Now that budget is closer to $5 million, she said.

This change does not affect projects already planned, such as the renovation of teaching labs, she said.

Campbell said she expects the market to re-gather and begin to increase again in time. Until that happens, the university will be more cautious with its spending, she said.

“(The decline) means the belt gets notched in,” she said. “But it’s only one notch.”

John-Mark Day
j.m.day2@student.tcu.edu