In the wake of the worst stock market plunge in nearly 15 years, Penn and other universities are sticking to their financial guns.
The University has no plans to make changes to its investment or fundraising strategies in light of the sharp 8 percent decline in funds it has experienced over the past few months.
Penn's endowment decreased from about $3.4 billion to under $3.2 billion between June 1 and Sept. 30, the first quarter of Fiscal Year 2003. Although Penn lost over $250 million, it still managed to outperform its benchmark figure.
"To change asset allocation from quarter to quarter is expensive," Vice President for Finance and Treasurer Craig Carnaroli said. "We're not in the position to try to time the market."
The S&P; 500 decreased 17.3 percent in the last three-month period, which ranks as the worst stock market drop since the record fourth quarter of 1987.
University officials said that Penn determines its investment strategy by long-term gains and losses rather than those that occur within a short period of time.
"We make longer-term adjustments, not midcourse corrections," University President Judith Rodin said.
While Penn may be faring better than some of its peers, not all schools have been hit as hard. Duke University's endowment experienced a 4.7 percent loss this quarter, according to David Shumate, the school's director of finance administration.
"It's been a volatile quarter," Shumate said, adding that there are no plans to switch investment tactics. "We're long-term investors."
Academic institutions across the country have seen financial losses over the past year, according to John Griswold, the senior vice president of Commonfund, a company that manages the investments of 1,400 colleges and universities.
Griswold has not yet collected numbers for the last quarter, but he said that universities that invest largely in alternative assets, which include real estate, hedge funds and private buy-out and venture capital firms, have fared better in the economic downturn and could possibly continue to fare well in the future if the current bear market trend keeps up.
Investment in alternative assets "seems to be cushioning them in most respects," Griswold said. "Of course, no one has a crystal ball."
Chief Investment Officer Landis Zimmerman said that Penn is working to increase the endowment's alternative assets portfolio. While no large investment changes are in store, individual manager decisions occur constantly on the micro level.
Twenty percent of Penn's endowment is invested in bonds, 50 percent is invested in global equities and 30 percent is invested in alternative assets.
Of the three sectors, Penn's global equities investments suffered most over the past quarter.
"This was a horrible quarter for equities," Zimmerman said.
The Commonfund's last study of about 100 institutions reported an average 5.5 percent loss in Fiscal Year 2002, which ended June 30.
Penn's endowment value showed a 0.1 percent improvement in FY 2002. In comparison, the University's benchmark figure for the year was down 6.7 percent.
Penn's endowment has performed well compared to many of its peer institutions because of the University's conservative investment strategy. While the endowment performed poorly for a few years during the last decade's bull market -- many of Penn's peers experienced double-digit percentage gains over that period -- it exceeded expectations in the past year's economic slump.
"When the telecom bubble burst... Penn managed to have very few losses," Zimmerman said.
Over a quarter million dollars down, Penn officials plan on waiting out the bear market.
"There's no compensating plan for fundraising," Rodin said. "We are [maintaining] and always maintain the most aggressive fundraising mode possible, so it would be hard to improve on how aggressive we are."
In the immediate future, the endowment's loss will have no impact on Penn or its students, officials said, as the University spends money according to a lagged, three-year rolling average that officials say produces a "smoothing effect."
And according to Rodin, Penn is accommodated for the loss because it made a five-year cut in administrative spending this year before the recent stock market drop.
"We feel we've been quite conservative in our budgeting assumptions thus far," Rodin said, noting that if the market continued to steadily decline over many years, Penn would alter its budget.
"Some of our peers obviously... were quite aggressive in their spending... and Penn doesn't budget that way," she added.
