Columbia University's endowment investments grew at a rate above the national average last year, but the fund's overall growth was slowed by rising inflation and an increase in endowment spending. Nationally, most universities are still facing budget crunches as endowments have yet to feel the benefits of the economic recovery.
As the major capital and gift-giving campaigns of the George Rupp administration have come to a close, last year Columbia made a series of moves to retire old debt, and to pave the way for future improvements. Endowment spending rose to 6.3 percent from last year's 4.8 percent.
"In the past several years, we've been making some endowment commitments to support the expansion of our housing stock," said John Masten, executive vice president for finance. "But they are all one-time costs."
Columbia's endowment grew overall about 2.5 percent, according to its 2003 financial report. While the investment of the endowment produced a 5.3 percent rate of return, a larger part of the endowment was spent this year on one-time projects. Gifts grew 4.4 percent to $241.1 million, with an additional $62.0 million in special endowment gifts.
"The way that the spending has been managed embodies some of the quieter virtues of prudence and care," Masten said.
The largest part of the $190 million spent out of the endowment was $52 million to cover a few years worth of Columbia University Medical Center operating deficits. The Trustees of the University have created a 4.5 percent endowment spending target that, when the past few years are averaged, Columbia has met, according to Masten. The current market value of the endowment is $4.343 billion.
Columbia employs a conservative investment strategy. While individual holdings may seem risky, when counted together Columbia's portfolio produces a shock-resistant array of investments--a core tenet of investment theory. Columbia typically holds only about 16 percent of its investment in stocks. Hedge funds are the top asset at 40 percent of the portfolio, and produced the biggest gains in 2003.
As a result, Columbia did not see the ballooning returns of the late '90s, but has actual grown slightly faster than the S&P 500 index over the last 10 years.
"One of the results of the asset allocation is designed to smooth out the effect of adverse markets. We may not see gains in the domestic equity markets, but our goal is not to participate in the fully negative years," Masten said.
Unlike Columbia, other institutions use in-house fund managers to invest more aggressively. Harvard, for example, recently bought a forest in New Zealand as part of a major investment in timber commodities now representing nearly 10 percent of their endowment. Many schools also produce individual endowment financial reports; Columbia does not.
"It appears that the largest endowments are more successful because they're more diversified," said John Griswold, executive director of the Commonfund Institute. Of Harvard and Yale, Griswold said, "they've gone into alternative investments more aggressively."
Nationally, most universities are still suffering from the after effects of the late-1990s market crash, and have yet to gain from economic recovery. In the past month, two surveys comparing endowment size and returns at universities nation-wide have been released. The results are mixed, but are, on the whole, negative.
The Commonfund Institute, a firm that helps non-profit firms manage their investments, said the average return on investment was 3.1 percent--well above last year's negative 0.6 percent growth, but still not enough to recover from five-year losses.
A survey by the National Association of College and University Business Officers painted an even bleaker picture, finding that with the past year's growth-led inflation jump, most endowments shrunk despite gains in investment income.
On both measures, Columbia was above average, but well behind the leaders. Aside from major crises or shocks, wealthier universities tend to weather financial difficulties because of their endowments' diverse portfolios.
Columbia's endowment ranks eighth nationally, behind Yale at $11.034 billion and leader Harvard at $18.849 billion. Overall, Columbia's endowment income accounts for only about 11 percent of its budget; at Yale it is 30 percent.
Endowments are a key part of university financing. They provide a steady stream of income apart from a school's operations, although many endowment funds are "restricted" for certain purposes, and can't be easily redirected. Tuition rate increases are controversial, and government grant income is highly dependent on facilities and the quality of faculty and students. Investments in new capital at Columbia, like renovating campus buildings, is often done through borrowing and not directly from the endowment.
Schools are sometimes criticized for holding too much of their money in endowments. But the choice to spend on new projects or save for the long term is as difficult for universities as it is for college students.
"What is the right number? There's no formula for this business," Griswold said.