The coronavirus has forced business closures, school closures, and self isolation, thus having a detrimental effect on the U.S. economy. Restaurants have struggled to make profits and pay rents and the stock market has experienced a nosedive. The Stevens endowment is no exception.
A university endowment represents the money or other financial assets (like real estate) that are donated to a university and is meant to be invested to grow capital and provide additional income for future investing and spending. As seen below, the Stevens endowment portfolio is spread across many different areas with U.S. equity taking the lead with 24%. The U.S. Equity represents the percentage of the endowment in the S&P 500 index, a market-capitalization-weighted index. The rest of the endowment is diversified into fixed income and alternative investments such as private equity, private credit, and real estate.
In the fiscal year of 2019, the endowment increased by $17 million, adding up to a total of $224 million as of June 30, 2019. The company in charge of the endowment portfolio, our Outsourced Chief Investment Officer (OCIO), is Goldman Sachs. Stevens expects a report from the OCIO by Friday, April 17, 2020 regarding the economic impact on the endowment. They have provided inferences and estimations on the effect.
As of April 8, the S&P 500 is down 17.24% and the MSCI EAFE(Europe, Australasia and Far East) is down 21.97%. Goldman Sachs states that “Historically, when the S&P 500 experiences a decline more than -20%, the average decline is -33%. The average time recovery is 23 months. For a 50%/50% (stocks/bonds) portfolio, the average decline is -16.2% and the recovery time is 13 months.”
At the end of December 2019, the endowment valued $231 million, currently it stands at an estimated $209 million, down approximately 7.6%. We lost the $17 million we acquired last year and an additional $5 million.
Many of you may be asking yourselves: Where will spending be cut? Will tuition increase, decrease or remain the same? The spending rate on the University’s endowment is “calculated on a 3-year average of the market value of the endowment.” Therefore, the affect on the spending rate might be minor, since it is based on the average balance estimation across three years. Should any spending cuts be made, the adjustments would be made to discretionary spending areas that have not been disclosed. Tuition for the 2020-2021 academic year will remain the same. Tuition fees were approved by the Board of Trustees at their December 19, 2019 meeting.
As mentioned above, the spending rate is calculated on a three year average. Currently, the spending distribution from Endowment to Operations which includes scholarships is 4.5%. The majority of endowment spending is used to help fund the University’s total scholarship budget. The effect of the economic crisis on scholarship and financial aid distribution will be disputed by the Investment Committee and Board of Trustees this June.
A portion of our endowment, $475,000 is managed by student participants in the Stevens Student Management Investment Fund (SSMIF). A Professor of Stevens SMIF courses, Dr. Jonathon Kaufman informs, “We are not permitted to time the market, so all money is invested in individual stocks or the S&P 500 index at all times. In short, we will stay the course with perhaps a few adjustments in the individual stock selection.”
It is difficult to predict an exact decline of the endowment with the variability of the stock market, but adjustments to spending and allocation of assets and equities will be discussed this June when more information on the state of the economy and capital markets is available.
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