Endowment down because of economic factors
TCU’s endowment has shrunk 15 percent since March 2000. Since interest off the endowment supplies a quarter of the university’s operating budget, the squeeze may pressure the university to increase tuition and reallocate money from one academic department to another.

By Jonathan Sampson
Skiff Staff

Recent investor uncertainty in the stock market coupled with a downward turn in the economy that began almost two years ago has cut away about 15 percent of TCU’s endowment since March 2000 and left the administration without many options for new income.

Carol Campbell, vice chancellor of business and finance, said a floundering stock market is particularly difficult for private universities, most of which have three primary sources of income: tuition and fees, interest off endowments and gifts from private donors. She said the university can also ask departments to reallocate money, moving it from one program to fund another.

But with the volatile endowment and decreased giving, the only sure bets for TCU are tuition and departmental reallocations, both of which Campbell said are difficult options.

After an 8.7 percent increase in tuition last year — the largest in university history — Campbell said TCU will need to be prudent in tuition increases.

“I can tell you it’s going to go up,” Campbell said. “It’s just too early to tell (how much). Right now we are sensitive to the fact that families are facing the same (financial) problems.”

Of TCU’s $200 million operating budget, roughly $50 million comes from revenue generated by the endowment, Campbell said.

After hitting a high-point of $1 billion in March 2000, TCU’s endowment shrunk by 15 percent and equaled roughly $850 million by the Sept. 30, 2001, financial report, Campbell said.

Almost one year later, after rising and falling again, the endowment remained at the $850 million mark as of June 30. Campbell said she expects financial reports to show further drops in July and August because of increased uncertainty in the stock market and corporate scandals.

“From what I’ve read, this is very reflective of the experience of other institutions,” Campbell said.

Over the last year the S&P 500 went down 17.99 percent, but Campell said TCU’s endowment only decreased 6.73 percen. The S&P 500 is a basket of 500 widely held stocks considered by economists to be representative of the stock market as a whole.

Jonathan Hook, Baylor University’s Chief Investment Officer, said most schools’ endowments have shrunk over the past two years because of the overall decline in the stock market.

“Given that most endowments are more heavily invested in stocks, you’re going to feel some of that pain,” Hook said.

Baylor’s endowment peaked at about $650 million in the early part of 2000, Hook said. It’s now worth $600 million, according to May 31 figures.

Formulas used by TCU and other universities rely on an 8 to 9 percent return on the endowment annually, Campbell said. But there are concerns that the market won’t support those returns over the next few years.

“If that proves true, we’ll be under some (financial) stress for a long period of time,” she said.

But Campbell stressed that with any endowment, it’s a long-term investment and must be looked at as one.

“There are times when it over-performs and under-performs,” she said. “You just have to take a very long view.”