Sunday, July 12, 2009

Betting the University Endowment on the Market

A small Canadian university, St. Francis Xavier, made the headlines last week when it revealed that it lost a staggering 43% of its $100 million endowment in the past year. Unlike most universities, which use a mix of assets in their investment portfolios, St. F.X. placed 90% of the endowment in Canadian stocks, and the rest in "U.S. equities."

It sounds like a housecleaning is in order on one particular university committee. The Globe and Mail article notes:

St. FX also is on the hunt for new members for the volunteer committee that oversees the university's investments. “A number of them are in their 70s,” Mr. Duff said, and the school needs to do some succession planning.

One interesting thing about this whole case is that St. F.X., like most Canadian universities, is a public institution. Granted, the endowment money doubtlessly came from private donors, but the university still relies largely on public funding. Perhaps, given this reliance, some light government regulation is in order in terms of how public universities manage their endowment.

I find it difficult to believe that a university could pursue such a risky strategy. However, as we've been finding out steadily over the course of the past year, there are many aspects about the whole financial meltdown that have beggared belief. It may be that St. F.X. is an isolated case, but as the financial crisis continues to unfold, we may yet see some more "interesting" financial news coming from higher education. Let's just hope that no one decided to invest their endowment in derivatives...

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