College endowments better than last year, but still down

Endowments at most Minnesota colleges declined by millions of dollars over the past year, because endowment funds, which colleges rely on to pay some of their operating expenses, are partly invested in the stock market.

Colleges say the picture isn't as grim as it appears. Recent gains in the stock market mean endowments are on the way up. You wouldn't expect an investor to be pleased with an investment return of negative 3.6 percent.

"That doesn't sound too bad at all when you consider how crazy the markets were," said Mike Sullivan, the investment officer for the University of St. Thomas.

Here's why Sullivan is relieved that St. Thomas' endowment was down only $16 million over the past year.

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In the summer of 2008, the endowment was $480 million. Then came the Wall Street meltdown. By March of this year, the endowment had declined by nearly a third.

The market rebounded in the spring and stocks continued a slow rise through the summer. At last check, the endowment had made it up to $410 million. That's still down from last year, but the loss wasn't as bad as it could have been.

The endowment at Carleton College in Northfield is down 2.2 percent over last year. It's at $554 million, about $100 million less than its highest point two years ago.

Investment officer Jason Matz said he's never happy with a negative return. But Matz is relieved the college's investments were able to weather the stock market storm, and take advantage of recent increases in the market.

Jason Matz
Jason Matz is in charge of investments for Carleton College.
MPR Photo/Tim Post

"We're quite pleased with being down only that much during the same period when domestic equities were down about 5.5 percent," Matz said. "So we out performed the market as a whole."

The losses to the University of Minnesota's consolidated endowment would make any investor reach for a bottle of antacid.

In the fall of 2008, the endowment had $1.1 billion in the bank. At last check it had fallen to about $850 million, a loss of about $251 million. Some of the decline comes from spending, but most of it was caused by stock market losses.

Stuart Mason, the U's investment officer, said the endowment has seen positive returns in recent months. But Mason said because the fund had less money in the stock market after the crash, they missed out on some of the market's upswing.

"We were gaining 6, 7 or 8 percent," Mason said. "We were not gaining 50 percent, which is what those in the stock market did."

Mason isn't counting on a huge increase in stock market returns anytime in the future. But his office is shifting investments to take advantage of whatever increases the stock market can squeeze out.

"So we're trying to position the portfolio to make money at a time when the stock market isn't really doing very well," he said.

Macalester College's endowment saw a negative return of 1.7 percent from September 2008 to 2009. But a late summer and fall surge in the endowment's value pushed its overall total from $550 million in September of 2008 to $599 million today. Even with the recent increase, Macalester's investment officer Craig Aase said the school's endowment has not recovered the money it lost over the last two years. At its peak it was $700 million.

"We're on our way back, but not there by some amount," Aase said.

College endowments may be poised for increases in the coming years, but that doesn't mean colleges will benefit anytime soon. Yearly payments from endowments, usually 4 to 5 percent of the total fund, are averaged out over several years.

Colleges can expect less money from their endowments over the next few years as those funds fight to make up lost ground.