November 12, 2002

University Endowment Suffers After Drop

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Cornell’s endowment fared poorly during the first quarter of the Fiscal Year (F.Y.) 2003, dropping 8.1 percent in what was the worst quarter for investors in 15 years.

“It was not a fun quarter,” said James Clarke, the University’s chief investment officer. “But it wasn’t disastrous.”

The endowment — currently valued at $2.8 billion — is sensitive to market fluctuations because about 70 percent of it is invested in equities and common stocks and about 30 percent is invested in fixed income and bonds.

Although this decrease reflects the current market downturn, the endowment fared better than the market as a whole over the last quarter.

In comparison to the endowment’s 8.1 percent decrease, the Standard and Poor’s (S&P) 500 fell 17.3 percent while the Nasdaq composite dropped 19.9 percent.

“Relative to the stock market, [the endowment] did relatively well,” Clarke said.

Clarke attributed the endowment’s success relative to the market as a whole to its hedge funds, bonds and real estate investments.

During F.Y. 2002, which ended in June, Cornell’s endowment decreased in total value by 7.7 percent. As during the past quarter, it outperformed the market as a whole, as the S&P decreased by 18 percent and Nasdaq fell 32 percent.

Cornell’s 7.7 percent decrease during F.Y. 2002 exceeded those of its Ivy League peers, but signified an average drop in comparison to most universities. The University of Pennsylvania’s endowment also fell 8 percent during the first quarter.

The recent drops in the endowment’s value will not have a significant impact on the day-to-day operations of the University, according to Clarke.

“The payout from the endowment is independent of the yearly performance of the endowment,” he said.

The Cornell Board of Trustees is in charge of determining the payout amount — the portion from the endowment used to fund University activities — and keeps the amount relatively stable from year to year despite market slumps or economic prosperity. If the payout value is not kept relatively constant, the University could face underfunding in future years.

When the endowment increased almost 20 percent in 2000 to $3.4 billion, for instance, the Board of Trustees did not significantly increase the payout.

“After two years of down performance, it’s hard to see [the Board of Trustees] increasing the payout,” Clarke said. “They may even give consideration to cutting it.”

Although Cornell’s endowment is one of the highest in the nation, many Ivy League institutions’ endowments exceed it in value. Harvard and Yale Universities have endowments valued at about $20 billion and $10 billion respectively.

Henrik N. Dullea ’61, vice president for University relations, and Harold Craft, vice president for administration and chief financial office could not be reached for comment.

Archived article by Stephanie Hankin