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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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