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University Endowments Lose Money

September 24, 1998

BOSTON (AP) _ The 1990s were a golden era for university endowment funds, which grew to more than $150 billion by the end of 1997.

Until recent stock market gyrations, that is. Universities used to double-digit investment returns every year now face the harsh reality that endowments can lose money, too.

Harvard, for example, has lost about 10 percent of its $13 billion endowment since July 1. Even for the country’s richest university endowment fund, $1.3 billion is a lot to lose.

But it’s not surprising, given that the Dow Jones industrial average, which closed at 8,001.99 Thursday, has fallen more than 1,300 points below its July peak of 9,337.97.

``I’ll bet you’ll find a lot of people down 10 percent,″ said Wayne Coon, chief investment officer for Emory University in Atlanta. ``I don’t think that’s unusual.″

Emory’s $5 billion endowment has 60 percent of its assets in Coca-Cola Co. stock _ a gift from the company, which is also based in Atlanta. With the drop in Coca-Cola stock’s price, the value of Emory’s endowment has also declined by about 10 percent.

Emory, however, has no intention of changing its investment strategy, said Coon.

Nor does Kansas University, which had $816.7 million in assets as of June 30, 1998.

``We tend to be not too awful concerned about short-term changes in the market,″ said John Scarffe, spokesman for the Kansas University Endowment Association.

Most universities and colleges, in fact, are not terribly worried about a 10 percent drop, said Todd Petzel, chief investment officer of the Westport, Conn.-based Common Fund, a not-for-profit investment company for schools, colleges and universities.

``The nice thing is the trustees understand these are perpetual investments and they shouldn’t be worried about short-term volatility,″ said Petzel. ``They are not getting too upset about the 10 percent drop.″

Endowments _ the stocks, cash, and real estate that colleges and universities receive as gifts _ generate funds for operating expenses and financial aid.

Petzel said most endowment funds invest between 60 and 75 percent of their assets in stocks. Since the stock market declined 10 percent in August and the bond market rose only a percent or two, he said, a 10 percent decline is pretty standard.

He also noted that the 10 percent drop in many cases follows three years of compound annual returns of 20 percent.

A study by the National Association of College and University Business Officers released in February showed the average investment return rate for 498 colleges and universities was 20.4 percent for the year starting July 1, 1996, an increase over the previous year’s return of 17.2 percent.

Larry Goldstein, senior vice president for NACUBO, said colleges and universities are familiar with short-term stock market volatility. The 1987 drop, he said, was a dramatic hit when it happened.

``But most schools didn’t do anything,″ he said. ``They waited it out and they were rewarded with a wonderful market thereafter.″

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