In the first quarter of the new fiscal year, which began July 1, 2001, Saint Louis University’s endowment is expected to show a loss of approximately $75 million-nine percent of its market value.
According to Rob Altholz, vice president of business and finance, the endowment has an estimated market value of $750 million as of Sept. 30. The exact figure should be known within a few weeks, since market value is determined at the end of each quarter.
Despite the drop in the stock market, SLU has no plans to change its investments.
“On a long-term basis, we think that this appropriation of asset allocation will maximize the endowment in the long run,” said Altholz. “SLU is a long-term investor.”
Approximately 50 percent of the assets is in domestic equities, which have a mid-range level of risk and are based primarily on how the United States’ economy is doing as a whole. Ten percent of assets are in international equities, with a mid-range level of risk also. In the low-risk category, SLU maintains approximately 15 percent of the endowment in domestic bonds, which provide a steady but smaller return. The remaining 25 percent is in alternative products, including venture capital, private equity and real estate, which have a higher risk.
“Nobody is smart enough to go out (of the market) at the right time and get back in in time,” Altholz said.
In comparison to the $75 million loss in the first quarter of this year, during Fiscal Year 2000-2001, the endowment declined approximately $104 million from the previous market value of $929 million on June 30, 2000. The value dropped to $825 million on June 30, 2001. Included in that drop were a dividend interest of $16 million and losses of $67 million losses in equity value and $53 million in endowment spending.
Overall, the endowment for FY 2000-2001 had a negative 6 percent return, compared to a negative 14 percent return in the S&P 500.
From the endowment, approximately 17 percent of the budget funding is provided. In FY 2000-2001, approximately $53 million of the endowment was allocated to the budget.
To determine the amount allotted from the endowment to the budget, the University examines the endowment-market value for the last 12 quarters.
From those numbers, an average market value is calculated, and 5 3/4 percent of that is allotted to the operating budget.
Altholz expects the allotment to the budget to actually be slightly higher, since the endowment’s highest quarters are included in the 12 quarters analyzed.
“This method allows for a predictable and consistent amount of annual spending,” Altholz added.
With the Federal Reserve Bank continually lowering interest rates, SLU has been able to pay lower interest on $65 million worth of variable-rate bonds, but SLU has also been receiving lower interest on the operating cash that has been in short-term investments.
Altholz added, “In the end, it’s a wash-with reduced income and reduced expenses.”
He said that no decisions have been made regarding next year’s budgeting process. As of now, he says, there are no expected changes to this year’s budget.
However, Altholz explained that he does know several factors that will play into the budget next year, as a result of the events of Sept. 11. He expects increased health insurance, property and liability insurance and workers compensation costs, as many of these firms were forced to pay out large sums of money following the terrorist attacks.
The first budget meeting for Fiscal Year 2002-2003 will be held this Friday.
