Recession reduces private college endowments

First Posted: 7/1/2009

Luzerne County’s three private institutions of higher learning lost between 22.7 percent and 24.7 percent of their endowment values over the past fiscal year, according to data provided by the schools.

The economic downturn wreaked havoc on the portfolios of King’s College and Wilkes University in Wilkes-Barre and Misericordia University in Dallas Township. From July 1, 2008, through May 31, 2009, the schools reported the worst depreciation of endowment accounts in at least a decade.

King’s saw the biggest loss both in dollars and percentage. When the fiscal year began, the Catholic college sponsored by the Congregation of the Holy Cross had $60.79 million in its endowment. Eleven months later, that value had dropped $15 million or 24.7 percent.

All three colleges provided figures through May 31, the most recent figures available. Final fiscal year figures will be available in the near future.

The hits taken by the three schools will not be felt immediately by students when it comes to financial aid, said Frank Oliver, vice president for institutional advancement at King’s.

“Your local colleges are mostly driven by tuition,” Oliver said. Only a small portion of endowments are used for financial aid.

At Misericordia, President Michael A. MacDowell said additional funds from internal accounts will be used to fund financial aid that may be cut from the loss of endowment value.

Wilkes lost 24.2 percent or $9.3 million of its endowment value. As of May 31, the school’s endowment had $29.45 million. Wilkes’ Vice President for Finance and Support Petra Carver declined comment.

Misericordia, a Catholic university founded by the Sisters of Mercy, lost 14 percent of its fund value the past 11 months. It started with $17.1 million on July 1, 2008.

By May 31, the endowment was down to $14.7 million. But that includes $1.5 million put in by the university after a successful capital and endowment campaign. If that money is taken out of the equation, the loss is 22.7 percent.

By comparison, the school increased its endowment value 8.2 percent during the 2007-08 fiscal year.

At a national level, for comparison, in 2006-07, the average endowment increased by 10.6 percent. The next fiscal year, the average increased by 16.9 percent, according to Commonfund, which invests money for colleges and other groups.

MacDowell said times were good but anyone who follows business models or the markets knows that the bubble will eventually burst. “You can’t fool the business cycle. It will catch up to you,” MacDowell said. “And look, it clearly has.”

MacDowell said the loss was expected when it became apparent last fall that the country was in a recession. Most endowments are tied to investments ranging from stocks to hedge funds. Overall, no matter how money was invested, many endowments saw a loss of value, according to a variety of recent news articles from across the country.

“These are tough times,” MacDowell said. “The market took a hit.” He said the school’s investment committee is keeping its eye on the endowment status often and is trying to do what it can to stave off additional losses. But being conservative has been the model the school has followed and will continue to, based in part on tradition and on necessity.

“We certainly don’t have enough money to get into alternative investments,” MacDowell said.

Oliver said colleges across the nation knew endowments would be taking a huge hit this past year. The question was just how much the values would plunge.

“I know that all of higher education has held its breath,” Oliver said.

According to a report from Moody’s Investors Service, cited by the Wall Street Journal in a story on Tuesday, most U.S. colleges are struggling with endowment losses between 20 and 30 percent. The story also cited data from Northern Trust Corp. that showed the median loss for schools with an endowment valued at less than $100 million was only 16 percent.

Many schools with larger endowments rely on those funds for a variety of uses, from salaries to capital improvements to financial aid. Harvard University, with the largest endowment in the nation, is expected to lose about 30 percent of its $37 billion endowment, according to a story in the Chronicle of Higher Education.

If that comes to fruition, it would leave the Ivy League school with $26 billion.

MacDowell agreed with Oliver that local schools are lucky they are not dependent on endowments, thanks in part to their small size.

“The good news for us is we didn’t have much of an endowment,” MacDowell said, though he noted when he came on board 11 years ago the endowment value stood at $4.5 million.

“We will continue to try to build it for the foreseeable future, but we will not become endowment dependent. I think this has shown us why,” MacDowell said.

Oliver said the endowment loss will “make us tighten our belts” but added it will “not affect students or teachers.”


College               2007 value    2008 value   2009 value*
Wilkes                $42.7         $38.8         $29.4
King's                $60.7         $60.7         $45.7
Misericordia          $15.2         $17.1         $14.7
*based on data through May 31 and all values are in millions

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