Email This Story

BU officials: Funds fine despite loss

Nov. 13, 2009

By Adeola Aro
Staff Writer

Baylor's endowment has decreased by 13.3 percent in the past year because of the downturn in the global economy.

According to university officials, the endowment decreased from approximately $1.05 billion dollars in June 2008 to $936 million dollars this year.

The last time the endowment decreased significantly was in 2003, when it dropped from $584 million to $561 million.

However, officials say it could have been worse.

Lori Fogleman, director of media communications, said the endowment has not suffered like those of other universities that are endowment- dependent.

"We have not had to make drastic cuts; we are not nearly as dependent on the endowment like other schools," Fogleman said. "We are very tuition-driven; by national standards we are faring well. We have not been immune, but we've fared well."

Freezing salaries and cutting student programs are actions the university has yet to face, Fogleman said.

In addition, the university has been able to hire more critical staff.

"We were able to add nearly 100 faculty and staff over the past academic year in the areas of greatest need, as well as start new degree programs: [a] Ph.D. in business school, master's of public health in community health, a new bachelor's of science degree for computer science fellows, among others and other projects," Fogleman said.

"For instance, one of the areas of greatest need was geology...they've been able to add outstanding scholars, such as Dr. Daniel Peppe, who came to Baylor from Yale to serve as an assistant professor of geology."

Fogleman said that Baylor is positioning its geology department to become nationally recognized among the Ph.D.-granting geo-science departments in the United States.

Officials at Southern Methodist University, TCU and Harvard have said their universities' endowments have also decreased in the past year. TCU reported an 18 percent decline in its endowment.

Harvard reported a 27.3 percent decline, dropping its endowment from $36.9 billion in 2008 to $26 billion in 2009.

Officials at SMU told The Lariat that while actual numbers showing a decrease in its endowment are private, they were able to release that the endowment had been hit by the economy.

The almost $11 billion loss forced Harvard to lay off 275 people in June because of its endowment dependence.

Meanwhile, measures have been taken to ensure that Baylor will not be hit too hard by the economic crisis.

The university's Office of Investments has managed to keep the endowment from further decreasing by investing funds in different equities, bonds and investments- a move that has allowed assets to thrive in the economy.

Kent Muckel, chief investment officer for Baylor said assets such as timber and natural gas are stable in a sour economy.

"During this extraordinary economic environment, the Baylor Executive Investment Committee and the Baylor Office of Investments managed the portfolio of investments in a highly diversified manner," Muckel said in an e-mail to The Lariat.

"The portfolio benefited from its exposure to natural resources and investments designed to benefit from market weakness. Baylor's investment office continues to look to preserve and increase portfolio liquidity and flexibility and to explore areas expected to provide attractive returns in the future."

According to Dr. Bill Reichenstein, professor of investments, diversifying assets such as timber and natural gases work in this market because returns are not correlated to the stock market.

So when the market had a horrible year in 2008, those investments managed to keep Baylor's endowment from being severely affected.

"It's like putting your eggs in a different basket," Reichenstein said.

Assets whose returns do not vary with stocks will produce more average or exceptional returns than stocks or bonds in the long run.

Baylor is not as heavily invested in U.S. equities as some endowments are.

"For example, in 2008, its probably wouldn't have been a good idea to invest heavily in the U.S. equity market since it tanked," said Dr. Dennis Prescott, vice president of university development.

The Office of University Development is designed to help raise funds and secure private financial contributions from alumni and corporations for the university and works hand-in-hand with the Office of Investments to help offset the 13.3 percent decline by raising more funds.

Prescott said fundraising varies from year to year, but he hopes to undertake a new initiative that will support student scholarships since donors have historically supported student aid and approximately $350 million of the endowment is restricted to student scholarships.

Baylor's total scholarship fund for 2009 to 2010 has increased by $9.09 million to more than $108 million, which includes a 38.7 percent increase in need-based scholarships for freshmen who entered Baylor in fall 2009.

Prescott also said the decrease does not really affect the number of scholarships received by students because the university's spending policy is designed to smooth the effects of the fluctuations in the markets.

More News ...