Friday, October 23, 1998
UCLA endowments not immune from market woes
FINANCE: Conservative investments minimize effects of dipping
stocks
By Lawrence Ferchaw
Daily Bruin Staff
After years of colossal gains, university endowments across the
nation took a hit when the stock market dropped over the
summer.
Endowments are funds received by the university from donors,
which are invested to earn income to pay for such things as endowed
professors and student scholarships. Income from the endowment at
UCLA makes up a little more than 1 percent of the university’s
operating revenues.
The stock market has since rebounded, but some universities
showed losses in the hundreds of millions. Harvard University’s $13
billion endowment lost $1 billion at one time. UCLA did not escape
the temporary drop in the market.
"Some universities were not aware of what they were investing
in, and that’s bad," said Shlomo Benartzi, assistant professor of
accounting at the Anderson Graduate School of Management.
Since the beginning of the year, the total value of UCLA’s
endowment has dropped a little more than four-tenths of 1 percent.
This translates into about $4 million.
"It’s not material against $1 billion," said George Letteney,
interim assistant vice chancellor of finance and information
management and chief financial officer.
UCLA’s endowment totals about $1 billion. Of that, about $700
million is controlled by the treasurer of the UC Regents, and the
remaining $300 million by the UCLA Foundation.
The Foundation employs eight fund managers who each oversee
their own piece of the $300 million total. The Investment Committee
of the foundation determines strict guidelines for the investment
of these funds.
The committee is composed of volunteers from the investment
community, as well as faculty members. This group picks managers
based on their style of investment, according to Letteney.
"These volunteers contributed large sums, which they worked hard
to earn, and want to work hard to protect," Letteney said.
Investment strategies for an endowment are much different than
for an individual. Since an endowment is generally looking at a
much longer time frame than an individual, financial officers look
to investments that will provide a yearly income, as well as growth
in the capital, so that the money does not lose value as a result
of inflation.
The treasurer of the Board of Regents manages the $4 billion in
the General Endowment pool. Five UC campuses rely exclusively on
this fund, while others, like UCLA, use a combination of their own
foundation and the board’s.
"Over the last four years, we did extremely well," said Patricia
Small, treasurer for the regents.
Washington University of St. Louis had a $3.5 billion endowment
as of June 30, but experienced some losses in the market
downturn.
"At our lowest point, we were probably down about $300 million,"
said Barbara Feiner, chief financial officer at Washington
University.
For both the foundation and the Regents, about 65 percent of the
funds are invested in equity securities, which include stocks like
General Electric and Coca Cola. The other 35 percent is put into
fixed income investments like bonds. Unlike the foundation, the
treasurer’s office has a full-time staff of investment
specialists.
"Excellent returns and low costs are doing donors and campuses a
big favor," Small said.
Each of the eight funds at the foundation has different focuses.
Areas include underperforming stocks  companies whose stock
prices are low, but likely to rise  foreign markets and
government bonds.
"The long-term nature dictates a more conservative approach,"
Letteney said.
University fundraisers often use the security and stability of
UCLA’s endowment as selling points for people to give money.
"Why would someone give $50 million if it’s not managed well?"
Letteney said.
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