By Michael McGuire
As the Dow Jones Industrial Average finally returns to the 13,000 mark, college endowment funds are showing a comeback. But about half of the nation’s schools haven’t recouped the money they lost in 2008 and 2009.
Locally, Washington and Lee University and the University of Virginia are among the schools that recovered faster from the recession, while Virginia Military Institute has a long way to go.
“We didn’t have a severe drop in 2008,” said Steve McAllister, W&L’s vice president of finance and treasurer. “At least not like other comparable schools.”
Colleges and universities use about 5 percent of their endowments each year to pay for operating costs that aren’t covered by tuition and other fees. Endowment fund capital is invested in the stock market. And like all investors, schools hope to earn more in the market than the amount they withdraw each year.
Between fiscal years 2008 and 2009, W&L’s endowment took only a 12.6 percent hit. That’s a little more than half of the loss suffered by nearby institutions.
VMI lost 22.5 percent of its endowment that year. U.Va. lost 21.8 percent.
Nationally, universities suffered an average loss of 23.2 percent between 2008 and 2009, according to a study by the National Association of College and University Business Officers and Commonfund, an investment firm that works with nonprofits.
McAllister said three main factors affect the year-end endowment figures: returns on investments, new financial gifts to the school and lower withdrawals from the fund.
Washington and Lee recently launched a capital campaign that, McAllister said, has provided the fund with “very strong growth.”
“And we will continue to see good growth from gift giving,” he said.
Over the past fiscal year, the W&L endowment grew more than 20 percent, slightly above the national average of 19.2 percent. Its fiscal year 2011 value of more than $1.2 billion is about 19 percent more than it was before the recession hit in 2009.
At the end of the 2011 fiscal year, VMI’s endowment was still almost 23 percent below its pre-recession value.
David Prasnicki, VMI’s chief financial officer, said that it might take the school two or three years to recuperate the financial loss caused by the recession.
“It takes a long time to get it back,” said Prasnicki, who has been the CFO at VMI for 24 years. “And even at $300 million, we’re still behind.”
Prasnicki said he expects the financial markets to continue to be volatile over the next couple of years. Until the investment returns become more stable, the school will “just have to ride it out,” he said.
This week the Dow Jones Industrial Average rose above 13,000 for the first time since May 2008.
Like W&L, the military institute is in the middle of a capital campaign. And even though everyone’s portfolios have been hurting, Prasnicki said, past VMI cadets continue to send donations to the school.
“Giving over the past two years has been pretty much the same,” he said. “It hasn’t been slinging either way.”
For W&L’s endowment, McAllister said, his long-term outlook is positive.
“We are seeing signs of real economic recovery,” he said.
But he said he thinks the next few years will be difficult, as European countries and the United States restructure to solve their debt problems.
“We have to be prepared for a lot of market volatility,” McAllister said. “It’s going to be a bumpy ride.”