University Endowments and the Financial Crisis

As a Vanderbilt University Law School alumni, I receive all sorts of miscellaneous emails related to the university. Recently, I received an email titled "A Message on the Economy from Chancellor Zeppos." Chancellor Zeppos, who I had for Civil Procedure as a first year law student, commented:

Vanderbilt is strong and sound, and [that] our progress will continue. In fact, a number of leading analysts have noted in public reports that, among our nation's great universities, Vanderbilt has set the standard for managing with clarity and speed the potential impact of unforeseen gyrations in the stock and credit markets.

Zeppos referenced his message to the Vanderbilt community. Surprisingly, despite the economic turmoil, Vanderbilt's endowment has returned 2.1% this year. This may be small compared with the prior two years' returns of 14.6% and 15.2%, but a small positive number is always better than negative.

So, how are university endowments faring in this financial crisis?

1. University of Texas has reported losing $1 billion so far in 2008.


2. Harvard has not said how much it has lost, but that it will be reassessing expansion plans.


3. Dartmouth has lost $220 million.


4. Yale will either have slow growth or maybe "post a loss" for 2008 and is recommending budget plans be conservative.


5. Cornell announced a "loss of revenue" in a general sense.


6. Columbia's endowment has "suffered" and will have to "make some choices" about resource allocation.


7. Loyola University - Chicago reported losses to its endowment back in early October of more than $30 million


8. University of Chicago will post a "serious decrease" on its endowment.


9. Northwestern reports its endowment being "hurt" by recent market declines.

So what does all this mean? Most of these schools were careful not to deliver all the bad news about the endowments right away. Probably a good thing, as the depth of the decline may not even be fully known now. Happily, the same university reports of declining endowments, though, are being met with what appears to be fiscal conservatism. That is, universities are reassessing new plans and looking over budgets to trim costs. This all sounds good to me in economic hard times.

But then today, I read in the Wall Street Journal that the compensation of university presidents was actually on the rise. The top ten list goes from Carl Patton at Georgia State University making $727,487 to E. Gordon Gee at Ohio State University making $1,346,225 for 2007-08. Even public university presidents were up about 7.6 percent over the prior year. Although retention of key personnel is important to universities, the current financial crisis should be a call to universities to trim compensation when faculty and staff salaries are remaining flat.

Today's announcement by Goldman Sachs key executives to forgo their 2008 bonus compensation should be a message to all that hard economic times are here. Certainly, universities will be trimming budgets to meet the financial crisis and declines in endowment value and revenues. Following the lead of Goldman, some university presidents might find themselves following suit on compensation.

— JSM