Assets suffer after years of growth at NU

Mindy Hagen

After a decade of double-digit annual growth, Northwestern’s net assets declined a lower-than-expected 6.6 percent last fiscal year, to $4.1 billion from $4.4 billion, according to the university’s financial report.

“At the end of the day, you still had a negative return on the endowment, so you can’t dance in the streets with too much vigor,” said Eugene Sunshine, senior vice president for business and finance. “But relative to the economy, you can’t expect to shoot the lights out from an investment point of view.”

The market value of NU’s largest group of investments, which comprises the lion’s share of assets and includes the university’s endowment, fell to $2.98 billion from $3.34 billion in August 2000, according to the report released last week. Administrators attributed the loss to the economic downturn, but said that NU’s investments outperformed expectations of a 16.5 percent drop.

NU will continue to follow its investment strategy of diverse and long-term planning to minimize losses during a down year, administrators said.

“We don’t get very concerned when there’s an individual down year because we design the investing policies for the long run,” said Ingrid Stafford, associate vice president for finance. “You want to be steady when you invest for the long haul. You want to hit a lot of singles, instead of home runs or strikeouts, and be able to protect yourself when the market turns downward.”

Sunshine said the investment losses will not immediately harm NU’s budget, as operating costs are funded from other sources, such as tuition, that don’t depend on the investment pool’s health.

“The loss or gain of the endowment overall does not have a budgetary implication,” he said. “It has an implication for the university’s overall wealth but it doesn’t impact the annual operating costs.”

Sunshine said officials would have to withdraw funds from the long-term investment pool for day-to-day costs only if the university’s investments declined significantly for at least a decade.

“One down year will have a very minimal effect on what comes out of the endowment to support the budget,” Sunshine said. “If markets are down for 10 years, then that is a different story. The short answer is not to worry about one negative year as far as the impact on the university’s budget.”

The loss is comparable to nearly every other college and university with similar endowments, said Jackie King, director of the American Council on Education’s Center for Policy Analysis.

“Schools are always evaluating their investment strategies, but last year was so negative that there weren’t a lot of places to hide or develop new strategies to make money,” King said.

Duke University’s long-term investment pool, for example, declined 4.6 percent from $4.08 billion to $3.89 billion in its 2001 fiscal year, Executive Vice President Tallman Trask III wrote in a letter posted on the university’s Web site. Washington University in St. Louis’ investment value shrunk by 6.2 percent during the last fiscal year, a $300 million loss, according to financial office administrators.

In addition to the decline in NU’s investment pool, the annual report also detailed the university’s 2001 operating expenses, which increased by 6.4 percent to about $872 million from $819 million in the 2000 fiscal year. Salaries and wages, which account for more than half of the operating costs, rose $30 million. The university’s maintenance and equipment cost, including some of the new construction projects, increased $10 million.

Sunshine said the higher operating costs were not a direct result of the economic conditions.

“Unless you are really paring back as an institution dramatically, you are going to see an increase in (operating costs),” he said. “If you are laying off droves of people and giving a zero percent salary increase, then the university might have a smaller percentage of a hike in the operating costs, but we are not in that situation.”

While the declining investment pool and increased operating costs hurt the university’s overall financial well being, Campaign Northwestern inched closer to its $1.4 billion goal. Gift revenue totaled $146.2 million during the fiscal year, and grants and contracts revenue increased by 10.8 percent to $248.3 million.

“Those universities in very active campaigns have probably increased their restricted assets, or gifts, this year,” Stafford said. “The investment performance, due to the economy, was the major story this year. All other revenue sources and expenditures such as gift donations were in the bounds of normalcy.”