University endowments losing big bucks

The endowment funds that Kentucky's public universities dutifully built up over the last decade have taken a collective $600 million hit as their stock market investments plummeted along with most Americans'.

Those endowments, most of which pay for student scholarships and faculty positions, lost an average of 25 percent of their value over the last year, according to a Herald-Leader survey of the universities. Much of the losses occurred in the last four months.

The endowments of area private colleges have taken similar hits. So have those of schools across the country, with Ivy League powerhouses such as Harvard and Yale suffering investment losses in the billions of dollars.

Shrinking endowments are hurting the schools in different ways.

Northern Kentucky University, for instance, now must find $100,000 in its already-strapped budget to cover scholarships promised to students this spring that were supposed to have been paid for out of endowment funds.

The accounts for 55 of its 140 endowed scholarships have lost so much value that they're "under water," said Gerry St. Amand, NKU's vice president for university advancement. That means they're worth less than the original donation that created the scholarships.

In total, NKU's endowment has dropped in value from $52 million in September 2007 to $39 million.

All this comes at a time when higher education is being battered on all financial fronts.

Universities are bracing for a mid-year cut in state funding of at least 2 percent and have been asked by Gov. Steve Beshear to hold down future tuition increases.

"It's a squeeze from all sides," said James A. Shaw, vice president of advancement at Morehead State University and CEO of the school's foundation, whose endowment has dropped by $9 million since its peak.

That's just a fraction of the $299 million that the University of Kentucky's endowment has lost since Sept. 2007, when its endowment came within spitting distance of the $1 billion mark.

Still, none of UK's scholarship funds are under water and the university will shell out the same amount next year for student scholarships and to pay for endowed faculty and research positions, said Marc A. Mathews, University of Kentucky's treasurer.

Hits to private colleges

The pain the stock market has inflicted on endowments has harmed private colleges more than public schools.

Most private schools rely on a mix of student tuition and fee payments, donations and earnings from endowments to operate.

Transylvania University's endowment dropped 26 percent since its peak of $144 million in June 2007. The endowment at Centre College in Danville lost 22 percent of its $207 million value in fall 2007.

Those amounts were slightly larger than the peak value of Georgetown College's endowment, which also has dropped "significantly" in the last three months, said Georgetown College spokesman Jim Durham. He said a figure won't be available until after Dec. 31.

Like their publicly-funded brethren, most of the private colleges are tightening their hiring, directing department chairs to trim costs and pushing back some renovation projects.

Most college administrators say they plan for rough times, albeit not sharp 25 percent drops in their endowments' values in mere months.

Centre College relies on earnings from its endowment to cover 20-25 percent of its annual costs — mostly professorships and scholarships, said Richard W. Trollinger, Centre's vice president for college relations. The college has imposed 5 percent cuts to finish the year in the black, he said.

"The big question is when we get toward April and what the situation looks like then," Trollinger said. "Can we remain flat or do we have to be reduced?"

Transylvania also is trimming where it can but still plans to fill four crucial faculty positions, said the university's president, Charles L. Shearer.

"Transylvania will go through this and come out as strong as ever," Shearer said.

Boom and bust

For public universities, the market bust comes after about a decade of steep increases, both in donations to endowments and investment values.

Much of that was spurred by the Bucks for Brains program created during former Gov. Paul Patton's administration. The program used state funds — more than $350 million between 1998 and 2006 — to match private donations in order to jump-start endowment growth.

The program has played a large role in the growth of UK's endowment. The market value of UK's endowment assets was $189 million in 1997, which was less than the University of Louisville. By September 2007, UK's endowment peaked at $996 million. As of Oct. 31, it had dropped below $700 million, Mathews said.

Still, UK's deans and department heads don't have to worry about losing endowed professorships or having scholarships disappear next year.

Both UK and U of L use a 36-month average of the endowment funds' market values to calculate how much of the earnings to scoop out. That way they're less susceptible to market fluctuations.

The big risk for them is if the market stays on its back throughout 2009.

"If the market doesn't recover a year from now, there will be some reductions in distributions to fund scholarships and professorships. But right now we're safe until June of 2010," Mathews said.

UK distributed $36 million for scholarships and professorships for the last academic year.

NKU, meanwhile, has suffered losses in many of its endowed scholarships because most of those donations are fairly recent, meaning they haven't had time to accrue much interest and were vulnerable to the market's fall, said St. Amand.

"That's one of the disadvantages of youth, I guess," he said.

Four of its eight endowed faculty positions also are under water, forcing NKU to find another $18,000 this spring, St. Amand said.

On paper, Western Kentucky University has taken the softest hit. Its endowment is about 10 percent smaller than it was at its peak earlier this year.

That's mostly because WKU is at the midpoint of a seven-year fund-raising campaign so donations have been pouring in over the last year, said Thomas S. Hiles, vice president for institutional advancement and executive director of the university's foundation.

It also helped that the foundation had sold some of its investments in stocks and other equities, Hiles said.

"Last year, we decided at the peak to take some money off the table," he said. "Sometimes it's better to be lucky than good."