The recent chaos on Wall Street is taking its toll on the University’s endowment, which posted its first annual loss since 2001 this summer with administrators projecting a worse situation for the upcoming year.
The $1.1 billion endowment, which has grown sharply in recent years, lost roughly 3 percent over the course of the last fiscal year, while the broader market lost 19 percent during the same period.
“It’s going to be a really tough environment,” said Don Lindsey, the University’s chief investment officer, noting that the markets are changing quickly and often unpredictably. “We don’t know what’s going to happen next.”
Over the last five years, the University’s endowment grew at an average annual rate of about 17 percent, including a 23 percent spike in 2007. This helped GW’s endowment break the billion-dollar mark, placing it ahead of local competitors like Georgetown and American.
Now, market turmoil in the form of huge price swings and the largest single-point plunge in history of the Dow Jones industrial average last month has left college endowment managers in deep water as they set goals for fund returns.
“Our goal is flat to slightly down, for next year or maybe longer, and to prevent losses in an environment that is highly volatile,” Lindsey said.
He added that it is hard to say where exactly the endowment stands at any given moment, noting that “there are multiple percentage point swings daily.”
Executive Vice President and Treasurer Lou Katz was also pessimistic about the fund’s outlook for the near future.
“This year was difficult and it will be worse next year,” he said.
But Katz said GW was doing better than other universities and is positioned to ride out these national financial pitfalls.
“We’re performing better than the market still,” he said. “We look at these things in three- to five-year cycles. This should not materially impact the University.”
Despite a major drop in the Dow Jones industrials index over the past year, GW has managed to limit its losses. In recent years, the endowment has been able to beat the market several times over, posting stronger returns than many successful investment funds and beating major stock indexes.
In an interview with The Washington Post last December, University President Steven Knapp called the endowment the University’s “greatest challenge,” noting that despite rapid growth it pays out about $55,000 per student each year, compared to more than $100,000 at competitors like New York University.
The endowment will continue to provide roughly the same amount of funding, thanks to its strong performance in recent years, Katz said. This will allow the University to distribute funds as planned.
“We are not starting or stopping any projects, but we are not ignoring this situation,” Katz said. “We will continue to look at the structure of our existing portfolio.”
Last fall, University officials sounded a more optimistic note.
“I think making a profit is very doable; you just have to have reasonable expectations for what the rate of return will be,” Lindsey said in fall 2007.
But that was before a number of prominent financial institutions failed – including Bear Stearns, Lehman Brothers and American Insurance Group – triggering a broader credit crisis.
Now, with investments stuck in the financial storm, Lindsey said the University will need to focus on protecting the gains it has made.
“We’re putting a lot of effort into capital preservation rather than capital growth,” Lindsey said. “We want to limit our losses relative to the market. When you have huge losses it takes a long time to get over.”
He added, “It’s going to be very difficult to do; it will require continuous caution.”