Amid the revelations of fraudulent accounting procedures in some of the nation’s largest corporations, investments in the stock market have suffered greatly, including university endowments.
Saint Louis University’s endowment, valued at $695.4 million as of June 30, 2002, has suffered the same fate as millions of Americans, losing considerable value over the past few years.
Rob Altholz, vice president for Business and Finance, explained that the endowment was $824.5 million one year earlier, but the difference is not simply a loss of value. Regular spending withdrawals of the budget totaled $67.4 million, with an additional $7.1 million in other withdrawals. That leaves the investment returns at a loss of $68.5 million.
Despite this loss during Fiscal Year 2002, the University is actually doing better comparatively than the market as a whole. For example, the University’s domestic equity and alternatives, essentially U.S. stocks, lost 13.2 percent in value, compared to 18 percent for the S&P 500. In a similar comparison internationally, SLU lost 8.1 percent on its international holdings compared to the international standard with its loss of 9.2 percent. In domestic fixed income, primarily bonds, the University gained 5.3 percent in value, which was slightly lower than the national benchmark of 8.6 percent.
“SLU managers performed relatively better than the domestic and international equity benchmarks,” Altholz said.
Overall, the University had an investment return of negative 9.6 percent from June 30, 2001, to June 30, 2002.
Although the University endowment has lost more than $250 million in value since its peak at approximately $950 million in early 2000, Altholz said that the University has not considered a change in its asset allocation. That allocation currently sits at approximately 75 percent in domestic equity, 10 percent in international equity and 15 percent in bonds.
“We’re not about to make any radical changes,” he said.
While these losses may seem significant, the University budget process prevents quarterly market changes from having any extreme effect on the budget. To accomplish this, the endowment’s contribution to the budget, set at 5.75 percent, is based on the average market value of the last 12 quarters. However, as the market has continued to drop over the past few years since the highs of the late 1990s, the endowment’s contribution to the budget will likely be reduced a small amount compared to previous budgets, said Altholz. Last year, approximately 17 percent of budget funding came from the endowment.
Until the National Association of College and University Business Offices releases its endowment study early next year, a comparison to other university endowment funds cannot be made.
With corporate scandals hitting the headlines daily, Altholz points to a psychological loss of confidence in the market that is driving value down.
He said that to his recollection the University had withdrawn most of its holdings from Enron and Worldcom prior to their collapses. He explained that it is often hard to know what individual stocks the University owns from day to day. “What we own today, we may not tomorrow,” he said.
Could such accounting problems be found within the University’s own books? “No,” Altholz stated firmly, pointing to the University’s “strict application to all the appropriate accounting principles.”
He believes that much of the current hype about corporate fraud is somewhat exaggerated: “For the most part, accounting principles are well-established and adhered to.” However, he admits that there are always judgment calls involved in accounting and that perhaps many accountants have been unwilling to take the more conservative stance.
After seven years as vice president and chief financial officer, Altholz says he is reasonably confident that the University endowment will return to its previous value within a few years. The key, he says, is to “do the right thing from a business plan, day in and day out.”
