U.S. schools hit hard as stocks fall

Penn's endowment also posted huge osses, but they should be reversible. Penn is far from the only school singing the stock-market blues. When the University found about $300 million wiped out from its endowment in the recent downturn, officials could at least take solace in the fact that other universities experienced still-greater investment losses in recent months. And Penn is also fortunate that its losses will likely not affect planned spending in the coming year, unlike the situation at some other major universities. Schools from Stanford University in the west to Emory University in the south found hundreds of millions of dollars missing from their coffers in the wake of this summer's market losses. Due to instability in the emerging markets of East Asia, Latin America and Russia, U.S. stocks lost more than $2 trillion between July 17 -- when most market indices hit their all-time highs -- and the end of August. Over that period, the major barometers, including the Dow Jones Industrial Average, Standard & Poor's 500 and technology-laden NASDAQ index, each lost between 19 percent and 26 percent of their values. Universities' endowments are important as a source of funding for annual budgets and long-term projects, and schools commonly invest hefty portions of their endowments in the stock market. Officials at many schools, however, downplayed the losses as a temporary setback and reaffirmed the financial health of their institutions, according to published reports. Penn officials confirmed last month that the school's endowment, which peaked at slightly more than $3 billion at the end of June, fell $300 million to about $2.7 billion by August 31 -- the day the Dow fell more than 512 points. Harvard University led all U.S. schools in total investment losses after its $13 billion endowment -- the nation's largest -- was reduced by $1.3 billion, officials at the company that runs the fund announced September 24. Several other schools joined Penn and Harvard in reporting matching losses of about 10 percent. Stanford lost $500 million of its $5 billion endowment, while the University of Virginia and Swarthmore College each lost $100 million of their $1 billion and $900 million endowments, respectively, student newspapers at the three schools reported. "All [schools'] portfolios, including [Virginia]'s, are very sensitive to market fluctuations," Virginia Treasurer Alice Handy told The Daily Cavalier. "This is not an unanticipated event." Princeton University was one of the few schools to sneak into the range of single-digit losses. At $357 million, the New Jersey school's losses totaled just 6.1 percent of its nearly $5.9 billion investment fund, The Daily Princetonian reported. "This is small potatoes compared to 1987 when the market dropped 20 percent in one day," Princeton Economics Professor Burton Malkiel told the newspaper. "This endowment losing [6.1 percent] is a relatively small adjustment." And while most colleges attempt to diversify their stock portfolios to reduce risk in volatile markets, Emory's investment in hometown Coca-Cola Co. yielded disastrous results during the recent market drop. The school took a $305.2 million one-day loss on August 31 on its Coca-Cola holdings alone when the stock dove $7.62 a share to close at $65.13. In total, Emory lost about $1 billion, the bi-weekly Emory Wheel reported, with Coca-Cola stock now accounting for 57 percent of the school's now-$4 billion endowment. "If the stock market stays at this level, Emory might have to change the pace of plans, maybe delay a proposed building a year or so," Emory Executive Vice President John Temple told the paper. Yale University will also have to cut spending because of the market problems, the Yale Daily News reported. Though exact figures on losses to the New Haven, Conn., school's $6.5 billion endowment were not available, Deputy Provost Charles Lang said the school could have $10 million less to spend than planned. Most colleges, including Penn, employ formulas that allow the school to spend only a small percentage of the total endowment -- usually around 5 percent -- while averaging several years' returns to minimize the effects of market fluctuations. Penn will only spend $51 million of its endowment, or less than 2 percent of its total investments, in the 1999 fiscal year. Penn Vice President for Finance Kathy Engebretson said she did not expect the fluctuations to affect Penn's spending to any significant degree. While Penn's endowment was the 12th largest in the country at the end of the 1997 fiscal year, it only ranked 65th on a per-student basis. University President Judith Rodin has said that endowment fundraising for undergraduate financial aid is among the University's highest priorities as Penn tries to compete with recent financial aid initiatives at better-endowed schools like Harvard, Princeton and Stanford.