No More Easy Money

Kevin Kiley:

One by one, the formerly profluent tributaries merging into the higher education revenue stream seem to face increasing obstruction. This time the bad news hits endowments.

In the past month several of the country's wealthiest universities have announced investment returns for the past fiscal year (which ran from July 1, 2011 to June 30, 2012) that fall significantly short of the growth they saw the previous year - when institutions with more than $1 billion endowments saw returns averaging 20 percent - and in the pre-recession years. The headline report is Harvard's 0.05 percent loss on its $30.7 billion endowment, the largest in the country.

That return raised flags for the analysts at Moody's Investors Service, who wrote in an Oct. 1 report that diminished returns were a bad sign for universities where endowment spending makes up a significant component of the budget. "Based on highly variable investment returns over the past decade, we expect endowment-dependent institutions to make more conservative spending decisions for future fiscal years and to more fully assess their operational vulnerability to investment volatility," the agency wrote. "Budgetary models are increasingly stress tested, and management teams are adjusting to more conservative assumptions about long-term rates of return on their endowment. Many have lowered their assumed annual endowment returns to 7 percent to 8 percent, compared to the higher 9 percent to 10 percent return assumptions that were common prior to 2009."

Posted by Jim Zellmer at October 15, 2012 1:44 AM
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