Jeffrey D. Sadow is an associate professor of political science at Louisiana State University Shreveport. If you're an elected official, political operative or anyone else upset at his views, don't go bothering LSUS or LSU System officials about that because these are his own views solely. This publishes five days weekly with the exception of 7 holidays. Also check out his Louisiana Legislature Log especially during legislative sessions (in "Louisiana Politics Blog Roll" below).
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20.2.17
Citizens deserve improved LA endowment metrics
It doesn’t help Louisiana’s higher education in
general make the case that it should garner increased subsidization by
taxpayers when in aggregate institutions’ endowments shrunk in a positive investing
environment.
Disturbingly, a number of institutions’ academic foundations
– legally separate fund-raising arms but controlled by their beneficiary
institutions – reported not just losses for the past fiscal year, but in many
cases these extended losses from prior years. This does not include athletic
foundations. For example, the state’s largest endowment by far – the Louisiana
State University Foundation – lost in the past two fiscal years 5.2 percent in
investments, even as in this time span the total system funding eked out a small
rise in total assets under the leadership of former Secretary of Economic
Development Stephen Moret, who departed towards the end of the period.
That his investment acumen fell much short of his
fundraising prowess seems shared across several other Louisiana universities
that reported much similar losing results. Former Commissioner of Higher
Education and present president of the University of Louisiana Lafayette Joseph
Savoie, whose school’s foundation also suffered investment losses, inappropriately
blamed fickle markets: “The endowment tends to follow the market. It goes up,
and it goes down, depending on the overall performance of the market.”
Yes, but the problem is in the past couple of
years Louisiana endowments appear to have gone in the opposite direction of a
sluggish but rising equity market. Over the FY 2015 and FY 2016 period, the Standard
and Poor’s 500 index, a broad-based equity indicator, increased just about 7 percent (including
dividends). And while bonds didn’t appreciate
as much, domestic categories still made positive gains. For that matter,
burying it all still would have outperformed the actual negative returns made
by these foundations.
The culprit, it appears, was overweighing in
commodities and real estate. Why so many Louisiana endowments would do this,
against what the bulk of investors were doing, is unknown but it happened,
disappointingly. Especially when sitting on hundreds of millions of dollars to
invest, with the buying power and economies of scale involved, as the Bernstein
character in Citizen Kane noted, “Well,
it's no trick to make a lot of money ... if what you want to do is make a lot
of money.”
Worse, the subpar investing could not have come at
a worse time. As across the nation states have pulled back on support of higher
education, asking institutions to use more of their own resources, behind
tuition and fees endowments potentially provide the next biggest source of
financing.
Worst of all, in terms of giving to academic
causes, Louisiana – using LSU as an indicator since it dominates the state’s university
fundraising landscape – historically
drags the rear among peer regional states for relative amount of giving and
donations from school alumni. Unfortunately, that seems indicative of a
substitution strategy where donations instead go to athletic pursuits; in the
most recent year of available data, of the Southeastern Conference schools
reporting, only LSU had more given to athletic than academic causes.
With these factors working against them, it’s imperative
that Louisiana school foundations make prudent investing decisions. While, for example,
the price of oil that has seen an upswing in price over recent months could
continue and produce above-average returns in the future, that still won’t make
up for a few years of downward performance.
Institutions need to vet rigorously their current
advisers with an eye on replacing those who have consistently failed to perform
at the median level of their professional category. Outreach programs must
deemphasize athletics and increase concentration on solicitations for
academics. These responses will reassure citizens that in any future reversal
of the diminishing relative contribution of state resources going to higher
education that they will have these dollars spent wisely.
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