Spring Break
Endowment shifts to risky investments
Scholarship, grant effects unknown
Krystal Moya / Administration Editor
Issue date: 2/6/09 Section: News
Shifting small amounts of the endowment back to risky equities is the strategy to help quell the $7 million loss in the endowment in the 2008 calendar year.
After Foundation President Tim Gover announced that the endowment lost 26 percent of its value in 2008 to the Board of Trustees, Hammond Associates, the foundation's hired investment consultants, have begun work on finalizing the fiscal year's data to give a better projection of the future of the endowment in the next fiscal years.
At the beginning of the 2008 fiscal year, the endowment funds allowed over $780,000 in scholarships and more than $1 million in grants.
However, because of the aforementioned losses, the amount of money that can be used for scholarships and grants could be greatly affected.
"At this time, we have little knowledge as to how this directly affects the students," said Patti Stratton, executive officer of the foundation referred by Gover because he was unable to comment. "We hope to know more after our plans take hold and Hammond can give us their presentation."
Stratton said that Don Gher, the investment committee leader, the committee and Hammond Associates are working together to develop strategic investment plans that allow more revenue flow into the endowment.
Gher explained the plan through someone else's words.
"I want to quote Warren Buffett when explaining our investment theory: 'Be careful when everyone is greedy, and be greedy when everyone is fearful,'" Gher said.
Gher said that the strategy to move slowly back into equities comes at a time when "most investors are fearful." Under the advice of Hammond, Gher and the committee began to reinvest in stocks with money originally invested in treasury inflation protection securities, which yield a low return at a low risk.
Approximately two years ago, the committee had shifted the allocation of assets to investments that encouraged less risk.
Moving investments from equities, stocks and bonds, to hedge funds, or funds-of-funds, that accrued less loss than they would have had they stayed in equities.
It allowed the school to buffer the 37 percent loss in the S&P 500, an area that yields over 40 percent of its investment.
However, the actual effects of the plan are for the long-term, Gher said. Knowing how the plan will affect the endowment will take time.
"This is a complex situation that involves close to 500 endowments," Stratton said. "Our investment strategy is continuously evolving and because of that and our team, we will weather the storm."
Eastern's assets have lost value from $52 million to $45 million over 2008. The quarter of October, November and December showed a loss of 12.9 percent in Eastern's endowment.
However, December saw a gain of 2.6 percent, and over three years, the endowment netted only a 4.8 percent loss.
"They have been making investments to buffer the effects of the economy for several years now," Stratton said. "Everybody in the market is suffering, but we are fairing better than schools our size because of where our investments lie."
Elizabeth Monticelli, investment consultant from Hammond, said any investment is risky unless "its cash stuck under your mattress in today's economy."
She said all equities are to blame for the losses.
"Anything short of actual cash lost money," Monticelli said. "Even the banks are risky because you run the risk of it going under while holding your cash."
Stratton explained that Eastern diversifies their investment portfolio to compensate for losses and continuously moves the majority of investments to the best source of income.
According to a Dec. 31, study by Hammond, Eastern's largest investments lie in US large stocks at 40.1 percent of the endowment. Hedge funds are the next largest investment at 18.1 percent, followed by US fixed income and international large stocks both taking over 16 percent of the investments.
Schools the same size as Eastern yielded 23.7 percent loss from July to November in 2008, a National Association of College and University Business Officers' endowment
study stated. Eastern lost 22.3 percent slightly better than then similar schools.
Hammond Associates will present to the Foundation Board toward the end of February, assessing the full damage of 2008 to the endowment portfolio. Numbers will be released to administrators then.
"Our team is working hard to collect the data, analyze the facts and continue to update our solution, but we just don't have the data right now," Stratton said. "The board has a meeting at the end of February, and by that time we should have a presentation ready."
Krystal Moya can be reached at 581-7942 or at ksmoya@eiu.edu.
After Foundation President Tim Gover announced that the endowment lost 26 percent of its value in 2008 to the Board of Trustees, Hammond Associates, the foundation's hired investment consultants, have begun work on finalizing the fiscal year's data to give a better projection of the future of the endowment in the next fiscal years.
At the beginning of the 2008 fiscal year, the endowment funds allowed over $780,000 in scholarships and more than $1 million in grants.
However, because of the aforementioned losses, the amount of money that can be used for scholarships and grants could be greatly affected.
"At this time, we have little knowledge as to how this directly affects the students," said Patti Stratton, executive officer of the foundation referred by Gover because he was unable to comment. "We hope to know more after our plans take hold and Hammond can give us their presentation."
Stratton said that Don Gher, the investment committee leader, the committee and Hammond Associates are working together to develop strategic investment plans that allow more revenue flow into the endowment.
Gher explained the plan through someone else's words.
"I want to quote Warren Buffett when explaining our investment theory: 'Be careful when everyone is greedy, and be greedy when everyone is fearful,'" Gher said.
Gher said that the strategy to move slowly back into equities comes at a time when "most investors are fearful." Under the advice of Hammond, Gher and the committee began to reinvest in stocks with money originally invested in treasury inflation protection securities, which yield a low return at a low risk.
Approximately two years ago, the committee had shifted the allocation of assets to investments that encouraged less risk.
Moving investments from equities, stocks and bonds, to hedge funds, or funds-of-funds, that accrued less loss than they would have had they stayed in equities.
It allowed the school to buffer the 37 percent loss in the S&P 500, an area that yields over 40 percent of its investment.
However, the actual effects of the plan are for the long-term, Gher said. Knowing how the plan will affect the endowment will take time.
"This is a complex situation that involves close to 500 endowments," Stratton said. "Our investment strategy is continuously evolving and because of that and our team, we will weather the storm."
Eastern's assets have lost value from $52 million to $45 million over 2008. The quarter of October, November and December showed a loss of 12.9 percent in Eastern's endowment.
However, December saw a gain of 2.6 percent, and over three years, the endowment netted only a 4.8 percent loss.
"They have been making investments to buffer the effects of the economy for several years now," Stratton said. "Everybody in the market is suffering, but we are fairing better than schools our size because of where our investments lie."
Elizabeth Monticelli, investment consultant from Hammond, said any investment is risky unless "its cash stuck under your mattress in today's economy."
She said all equities are to blame for the losses.
"Anything short of actual cash lost money," Monticelli said. "Even the banks are risky because you run the risk of it going under while holding your cash."
Stratton explained that Eastern diversifies their investment portfolio to compensate for losses and continuously moves the majority of investments to the best source of income.
According to a Dec. 31, study by Hammond, Eastern's largest investments lie in US large stocks at 40.1 percent of the endowment. Hedge funds are the next largest investment at 18.1 percent, followed by US fixed income and international large stocks both taking over 16 percent of the investments.
Schools the same size as Eastern yielded 23.7 percent loss from July to November in 2008, a National Association of College and University Business Officers' endowment
study stated. Eastern lost 22.3 percent slightly better than then similar schools.
Hammond Associates will present to the Foundation Board toward the end of February, assessing the full damage of 2008 to the endowment portfolio. Numbers will be released to administrators then.
"Our team is working hard to collect the data, analyze the facts and continue to update our solution, but we just don't have the data right now," Stratton said. "The board has a meeting at the end of February, and by that time we should have a presentation ready."
Krystal Moya can be reached at 581-7942 or at ksmoya@eiu.edu.
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