College investment officers are watching portfolios fall in the current financial crisis

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Listen: College investment officers are watching portfolios fall in the current financial crisis

College investment officers are responsible for hundreds of millions of dollars in investments, which is money that colleges rely on to operate. How are they handling the financial crisis?

MPR’s Tim Post interviews college investment officers on how they feel about portfolios falling during a financial crisis and how this relates to past events.


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TIM POST: Jason Matz relies on the Wall Street journal online to keep him up to date on the volatile stock market. On a recent afternoon, Matz, the Investment Director for Carleton College, went into an hour-long meeting thinking the market was pretty stable.

JASON MATZ: When I come out of the meeting, the market is down 7%. And that's been characteristic of what the stock market has done lately. It's just been exceedingly volatile and wide swings in any given day up to 10%

TIM POST: But Matz doesn't let the wild stock market affect how he handles his job. He does exactly what most long-term investors are being told to do.

JASON MATZ: We're not radically changing our strategy, trying to continue to think long term, trying not to panic. We've structured the portfolio so that we were somewhat conservative. That doesn't mean that we're not experiencing absolute declines, but they could be worse.

TIM POST: Matz and other college investment officers learned from the market plunge of 2001. They adopted a conservative investment strategy, reducing the amount of money they had in stocks. That being said, the recent losses to college endowments, which usually have some portion of their funds invested in the stock market, have been staggering.

Carleton's endowment was at $648 million on June 30th of this year. By the end of October, it had fallen to $540 million. Some of that change represented spending by the college, but most of the loss can be blamed on falling markets. Typically, Carleton and other colleges spend about 5% of their endowments annually on salaries, scholarships, and other expenses.

The University of Minnesota, for its part, spends 4.6% of its endowment each year. And like other colleges, the UMN has seen its endowment lose money recently. The college's consolidated endowment fund lost 12% since last year, falling from $1.25 billion to $1.1 billion. But Chief Investment Officer Stuart Mason says, like, Carleton college, his department took action in recent years to reduce the endowments risk in a downturn.

STUART MASON: In fact, the public stock portion of the portfolio today is probably something in the order of 25%, whereas six years ago, it would have been 85%.

TIM POST: Macalester College in Saint Paul has also experienced gut-wrenching negative returns in the last year. The college's investment officer is Craig Aase.

CRAIG AASE: It's about 550 million, and that's down from-- probably anticipating your next question, down from a peak of approximately 700 million a year ago.

TIM POST: Aase says institutional investors deal with those awful returns by reminding themselves that they're not playing the markets to make a quick buck. This is the longest of long-term investing.

CRAIG AASE: So I'm at the end of the day, an optimist that things will right themselves. It'll be a long and slow recovery, but it'll happen. And again, as a long-term investor, that's what we have to keep our eye on.

TIM POST: Here's also what investors keep their eyes on, the return of their endowments investments over 5 to 10 years. It's a good way to average out the numbers, and it takes the sting out of big dips in the market. The university of St. Thomas's endowment lost $54 million in only three short months this summer.

It was $480 million on June 30. By September 30, it was at 426 million. But Mike Sullivan, St. Thomas's Investment Officer, says taking the long view is a better measure of the overall performance of the fund.

MIKE SULLIVAN: Our tenure number on June 30 was something like 7 and 1/2 percent. So that's still a little light. Our target is 8 and 1/2 over long cycles. But I think the point is, is that we don't really react too strongly to either market value increases or decreases.

TIM POST: Sullivan says individual investors could take some guidance from how college investment officers do their job. Keep your cool in a volatile market, take the long view on investments, and don't make drastic changes even when times are tough. Tim Post, Minnesota Public Radio News, Minneapolis.

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