Endowment among hardest hit in U.S.

USC’s endowment had one of the largest losses among the nation’s top schools, according to a recently published report detailing university endowment figures for the last fiscal year.

The study, conducted by the National Association of College and University Business Officers (NACUBO), found that the endowments at universities nationwide lost an average of 18.7 percent in value. USC lost 25.6 percent in endowment funds — nearly 7 percent more than the national average. That 25.6 percent translated into a $1.2 billion loss between July 2008 and June 2009.

“The survey is in its 39th year, and this is the largest decline we’ve seen in its history,” NACUBO’s director of research and policy Kenneth Redd said.

USC ranked 22nd among the schools that suffered the worst endowment losses with Syracuse, Baylor College of Medicine, Harvard, Yale and Carnegie Mellon leading the pack.

USC was also ranked the 8th worst managed endowment by 24/7 Wall St., which based its rankings on absolute dollar gain and loss, percentage gain and loss and the greatest percentage and dollar gains and loses among the largest endowments.

“Just about every major institution with financial investments saw its endowment valuation go south,” Assistant Vice President for Media Relations James Grant wrote in an e-mail. “But the markets are rebounding, and we will continue to diversify our investment portfolio and seek to grow the endowment.”

USC administration has stated in the past that USC’s operating budget does not depend as much on its endowment’s returns as other schools, so, despite the loss, the university does not expect to see any major consequences to its budget.

Previously, USC had seen a steady increase in endowment funds because of the accumulating interest from various investments, ultimately leading to a high of $3.7 billion.

The endowment soon began to decline, showing the first traces of what would become a national recession and a worldwide market crash, falling from $3.6 billion in June 2008 to $2.4 billion by March 2009.

For schools that do rely heavily on their endowments, the drops can be catastrophic.

“Endowments are fairly important sources of revenue,” Redd said. “Fifteen to 20 percent of total operating budgets are from the endowment funds for many schools.”

Redd said endowments are especially important for financial aid and there have been schools that have cut financial aid from their budget.

“A lot of institutions have made commitments to financial aid plans,” he said. “They’ve had to cut back on financial aid and on outside administrative staff.”

Lawrence Picus, USC professor of education and finance, said USC has put a wise strategy in place to keep the school from feeling the consequences of a bad economy.

“We have a strategy to make sure that no one is badly hurt in bad times,” Picus said. “And we want to make sure we think wisely about how we spend our money when we have it.”

Robert Abeles, USC’s chief financial officer, has previously stated that the endowment loss would have a greater effect on the spending in the 2011 fiscal year than in the current year.

Redd noted that these drops, though frightening, are not necessarily cause for alarm.

“Endowments are supposed to last into perpetuity,” he said. “Campuses are not going to panic because of one bad year. You can make changes on campus, but the idea is to let the endowment grow in the future.”

Redd also said that, historically, stock has outpaced other forms of investment bonds, and, since most endowments are based on stock figures, there is a likelihood that endowments will grow in the near future.

“We can’t predict the future,” Redd said. “Certainly we think endowments will grow in the long run, but no one knows for sure what will happen.”

USC’s endowment has already grown since the end of the 2009 fiscal year; the endowment grew slightly to $2.5 billion in June.