Endowment loses $200 million in financial crisis

The university endowment lost about 17 percent of its market value this year soon after the financial crisis gained momentum in June, according to the chief investment officer.

James Hille, chief investment officer, said he told the Board of Trustees investment committee that from January to the end of October the endowment went from $1.2 billion to about $1 billion. Hille said the figure isn’t exact, but said the loss is about $200 million.

Hille pointed to the endowment troubles of institutions like Harvard University, which lost 22 percent of its market value, or $8 billion, in the first four months of the fiscal year, according to a report by the Financial Times.

“We’re not in certain capital markets like private equity and commodities as much as they were, and those asset classes just fell off a cliff,” Hille said. “Yes, we were impacted by it, but not nearly as much as some of these other endowments.”

Hille said the effects will not be felt in next year’s budget because the trustees agreed to spend as much of the endowment in the next fiscal year as they did in the last year, at or above 5 percent, to pay for annual operations. However, Hille said the long-term effects could be bad if there isn’t an economic recovery.

The endowment has a stake of about 25 percent in the stock market, which Hille said is low compared to most institutions. Nevertheless, Hille said the area where the university lost the most is the stock market, and the trouble started in June with the failure of investment bank Lehman Brothers.

“We have the compensating overweight in hedge funds, which did half as bad as that and another compensating overweight in cash, which isn’t gaining us anything but isn’t losing anything either,” Hille said.

The purpose of the endowment is divided up between paying for current operations and saving for future generations at the university, Hille said. He said that if the university loses any more, it could hurt those future generations.

Several things have to happen before the university sees any recovery in the endowment, Hille said. In addition to normal signs of a healthy economy like a low unemployment rate, Hille said the most important signs are the stabilization of real estate values and a more aggressive policy action by the Federal Reserve Board and other monetary officials.

In the meantime, Hille said he doesn’t see a significant recovery in the endowment by next year, but said he hopes he’s wrong. Hille said that it’s a balancing act between making sure the endowment doesn’t lose any more money and generating money through its investments.