Area colleges work to secure investments during tumultuous financial times

The country’s financial turmoil is more than a topic of study at area colleges. It’s also a potential threat to their bottom line.

Lynchburg College, Sweet Briar College, Randolph College and Liberty University each have tens of millions of dollars in endowment investments that are key to their overall financial health.

Colleges typically use generated returns from the endowment to fund a percentage of operating expenses like scholarships, faculty salaries and campus maintenance.

Within the past year, all four colleges have made moves to protect their investments by adopting more conservative market positions.

“We’re weathering the storm right now,” said Paul Davies, vice president for finance and administration at Sweet Briar. “We’ve positioned ourselves so that we’re not taking a whole lot of dollars out of the endowment. And like everyone else, we’re hoping that this (market) doesn’t stay for a couple years.”

About six months ago, the college took on a “defensive posture” by moving some of its endowment assets, currently valued at $95.5 million, out of stocks and into bonds that tend to be more secure.

“If one side is down, the other side will help you out,” Davies said. “But right now, the European markets are down as well as the U.S., so we’re being hit all at the same time.”

A year ago, the value of the assets stood at $103 million. Davies said that 7.4 percent loss is not realized unless the school pulls out investments while they’re valued lower.

“It’s a paper loss, and this is what’s going on with the world right now — the fear is what’s driving a lot of what’s going on,” he said.

Sweet Briar plans this year to spend 6.6 percent of its endowment, which amounts to 16 percent of the school’s $43.5 million operating budget.

Most schools aim to spend less than five percent of the endowment annually, Davies said, and hope for returns of at least six percent.

Both Sweet Briar and Randolph College have been working to reduce their spending rates in the past few years.

Chris Burnley, vice president for finance and administration at Randolph, said the goal is for the endowment’s earnings to accumulate each year and help the college remain secure during tumultuous times.

“We allocate our endowment based on a long-term viewpoint,” he said. “We look at it and say, ‘How do we think we should have this allocated based on what the market will do over the next 10 years?’”

Then the college sticks with that allocation “unless there is a major upheaval.”

“We don’t rush to change it based on one month or two months’ results,” Burnley said.

In February, the school further diversified its investments, now valued at $155.7 million including funds in trust, to 25 percent long equities, 30 percent bonds and 45 percent alternative investments such as in oil, timber, real estate and hedge funds.

In the 12 months ending June 30, the school took a 0.4 percent return loss on its endowment.

“Most of the volatility has occurred in (September), and we don’t know what the impact of that is yet,” Burnley said.

Lynchburg College’s endowment remained steady at about $84.5 million from June 2007 to June 2008, said Steve Bright, vice president for business and finance.

He acknowledged that the endowment has declined in value since then, but the college focuses on the perpetual nature of the funds and their gradual gains over an extended period of time.

“We’re really looking into something called intergenerational equity,” he said. “The important thing is to be having a long-term view. And you don’t panic as much about the present.”

LC also differs from many other institutions, Bright said, since it relies on tuition and fees to fund about 85 percent of its operating expenses each year. The 4.2 percent that the school plans to spend from its endowment this year constitutes some of the remaining expenses.

“Some entities depend on their endowments more than others,” he said. “Lynchburg College is a tuition-dependent institution.”

In the past year, Bright said, the school has switched to a new investment manager, reviewed its asset allocation policy and increased its diversification.

Liberty’s endowment has taken shape in roughly the last year, since the death of school founder, the Rev. Jerry Falwell Sr., said his son and now Chancellor Jerry Falwell Jr.

“When Dad passed, his life insurance was enough to pay off the (school’s) debt plus about $7 million into endowment,” he said.

Since then, the college has accumulated a roughly $35 million endowment, including investments in donated real estate such as The Plaza.

About three months ago, the school moved its “operating cash, endowments, everything,” Falwell said, into U.S. Treasury Bills with a return rate of between two and three percent.

“At least it’s safe,” he said. “I’m just going to keep it there until things are safe in general.”

Before moving the investments, he said, they were primarily in bonds and blue chip stocks from well-established companies with stable earnings.

“(Previously) we put a lot of our money into what’s called commercial paper (money-market securities),” he said. “But the market became really volatile, even for that.”