All Posts Tagged With: "endowment funds"
How one U.S. university avoided the great recession
School dodged “Yale model” in favour of conservative investing and a secure cash flow
The Wall Street Journal is reporting on the curious case of one U.S. university that has avoided the crushing losses to its endowment fund suffered by other schools like Harvard and Yale. (And Canadian universities, too.)
That school is the 150-year-old Cooper Union for the Advancement of Science and Art, which charges no tuition, and is headquartered in New York City’s East Village neighbourhood.
From the sounds of it, the recent financial meltdown hasn’t made much of a dent — the school has nearly finished construction on a new $150-million academic building, is hiring for a new biology program, is launching an environmental-design institute and will soon debut a master’s degree program in architecture.
More: Endowments for Dummies
Three years ago, particularly keeping in mind the tech bust and 9/11, the university’s administration decided to reduce the risks in their endowment fund. They renegotiated a property lease to ensure an steady income, sold some land, raised some money and hired some conservative investment managers. The school’s $600-million endowment has subsequently stayed about the same — and may even be up a bit at the end of the school’s fiscal year.
Those results are markedly different from schools that used what a Cooper spokesman calls the “Yale model,” in which schools eschew stocks in favour of alternative investments like private equity, commodities and timber.
In comparison, most Canadian and U.S. universities are dealing with endowment losses between 20 to 30 per cent.
For more on this story, including more information on Cooper’s high-profile land holdings, click here.
Big-ticket donations to shrink as the rich hold back
Tax-free giving plummets about 80 per cent; endowment funds could suffer
The sorry state of stock markets is stoking concerns among Canada’s largest charities that big-ticket, shares-based philanthropy will plummet with the indexes.
Over the last decade, capital gains tax incentives for donated stocks have laid a philanthropist pipeline that has funnelled billions of dollars worth of shares to Canadian charities.
In 2007, Canadian donors gave about $1 billion of common stock to large institutions such as universities and hospitals, said the head of philanthropic advisory services at the Scotia Trust asset management company.
But the tumbling world economy could soon turn the stock contribution surge into a trickle, experts say.
“This year, it’s almost non-existent,” said Scotia Trust’s Malcolm Burrows, who advises philanthropists and charities. “There’s been a significant drop off, I’d say probably about 80 per cent.”
Since 1997, Canada’s wealthy have been taking advantage of tax cuts for donated shares.
In 2006, the Conservative government removed the capital gains tax on stocks donated to public foundations and registered charities. Last year, the government eliminated the capital gains tax on gifts to private foundations.
Donors not only save in taxes, they also collect tax credits.
Burrows said due to the incentives, stock contributions went up 160 per cent between 1996 and 2007. But as well-to-do Canadians shift their focus to more immediate needs, he predicts large institutional charities and endowment funds will sustain heavy blows.
“It’s a basic fact that people give when they feel like they have excess, when they feel secure, and in this environment there’s not much of that,” Burrows said.
“For the most part, Canadians tend to dig deep in down times – they look to community needs. It may be slightly different this year, just because of the depth of the economic situation.”
An umbrella group that represents 1,200 Canadian charities says many charitable organizations across the country have reported a drop in large stock gifts.
In some cases, funding for existing foundations has been put on hold, said Jocelyne Daw, vice-president of marketing and community engagement for Imagine Canada.
“Obviously, people aren’t going to give gifts of shares if their shares are worth half what they once were,” Daw said from her Calgary office. “I don’t think too many people are going to be worrying about capital gains this year.”
Market crash crushes university endowments
Schools considering cuts to spending, scholarships
With the value of university endowment funds decreasing across Canada, students at post-secondary institutions may soon experience cuts to scholarships, student aid, and program funding.
Many Canadian universities are already reporting million-dollar losses from endowment funds as stock markets around the world plummet. Endowment funds are created entirely by donor contributions. The capital from these charitable donations is invested and the income is distributed annually, providing long-term and relatively stable funding for universities. Donors allocate funds to the areas they are most interested in financing, such as a university’s general mission or scholarships and bursaries.
Canadian universities currently have an estimated $11 billion in endowment funds. On average, Canadian schools invest over half of their endowment and pension funds in world markets, which have dropped more than 30 per cent in 2008, falling 17 per cent in October alone.
According to a Nov. 13 report in the Globe and Mail, some universities have already taken measures to brace themselves for projected further negative economic impacts. Hiring freezes are in place at several institutions, while others have begun to cut their distributions from endowment funds.
For Queen’s University, an institution that boasts a huge endowment fund, the loss could be more than $100 million. As of March 30, the market value of the school’s pooled fund was $632 million. This has dropped to $507 million as of Oct. 31, according to a report in the Queen’s Journal.
McGill University is facing similar losses from their fund, which had $928 million in endowments and has lost approximately 20 per cent – about $185 million – of its value.
The University of New Brunswick’s $170 million endowment fund has devalued by 20 per cent as of October, according to university president John McLaughlin. The school’s two pension funds have also dropped between 15 and 20 per cent.
At a recent meeting of the University of Ottawa’s board of governors, university treasurer Barbara Miazga said on March 31 the total market value of the school’s endowment fund assets was $139 million. By September this had dropped to $133 million.
These losses come at a difficult time for educational funding. Across the country, government cash and tuition-fee increases have failed to keep up with operating expenses and Canadian universities have already begun to cut costs.
Although dealing with the current economic situation will be a challenge for the universities, university administrators say it is not projected to have serious lasting impacts.
“Over the long term, we expect that at some point the economy is going to turn around and markets are going to recover,” says Miazga. “So that’s not where the risk is. The risk is in the short term.”
The greatest danger in the short term, she says, is that scholarships and bursaries to students could be significantly affected.
- with files from Maclean’s OnCampus, originally published in the The Fulcrum
