Duke's endowment has lost 19 percent of its value as of early December, despite assurances from University officials in recent weeks that Duke's financial situation is secure.
President Richard Brodhead attributed the drop to the ongoing recession and financial turmoil in an e-mail sent to faculty and staff early Wednesday evening and obtained by The Chronicle.
According to the Web site of the Duke University Management Company, which manages Duke's endowment, the value of the endowment June 30 was $6.1 billion. That would put the current value at approximately $4.9 billion.
"Duke is not immune from the powerful forces that are buffeting the economy. Duke's endowment, like virtually every other investment fund, has declined over the past few months," Brodhead wrote in the e-mail. "In addition, research universities such as Duke are also uncertain about the future of other funding sources, including federal research support."
Endowment spending typically comprises 15 percent of Duke's annual budget. Spending policies call for a payout of 5.5 percent of the endowment's three-year average value, and these policies are intentionally structured to compensate for difficult economic times.
In light of the endowment losses, senior administrators will begin drafting plans and recommendations to adjust to lower revenues, Brodhead wrote in the e-mail.
Comments:
The full text of President Brodhead’s email follows below.
On a first read, it looks to be long on puffery and very short on critical information concerning Duke’s endowment, finances and decisions influenced by them.
Brodhead tells us, for example, that “a Duke student won the Rhodes Scholarship, and two others were selected as Marshall Scholars.”
Those students have brought honor to Duke and earned our admiration and cheers for their outstanding achievements.
But President Brodhead knows their achievements were announced weeks ago.
Tonight, faculty, staff and the broader Duke community, especially students and parents, wanted and needed to hear things much more substantial and specific than that Duke’s “[i]dentifying cost reductions, savings and efficiencies in all school and administrative budgets.”
Or that Duke’s seeking “resources for our most strategic priorities while continuing to protect our core commitments.”
Doesn’t Duke do those sorts of things all the time; not just now?
On Dec. 1 a Bloomberg report mentioned Duke:”Crippled financial firms such as American International Group Inc. and bankrupt Lehman Brothers Holdings Inc. are joining strapped endowments such as the ones at Columbia University in New York and Duke University in Durham, North Carolina, in trying to sell private-equity stakes.”
President Brodhead did nothing tonight to explain why Bloomberg would call Duke’s endowment “strapped” and lump the university with “[c]rippled financial firms.”
Perhaps he will tomorrow. But I'm not betting on it.
Hat tips to those who gave heads-ups regarding Brodhead’s latest email and to the commenter who sent the Blomberg link.
Now, what are your reactions to Brodhead’s email tonight?
________________________________________________
Dear Faculty and Staff Colleagues,
As the year comes to an end, I want to update you on the impact of the global economic situation on Duke.
By many measures, Duke continues to enjoy great strength and stability. With help from generous supporters, we crossed the goal line of our $300 million Financial Aid Initiative, which will help ensure that a Duke education will remain affordable for all.
Last month, a Duke student won the Rhodes Scholarship, and two others were selected as Marshall Scholars. And student interest in Duke has never been higher, with a 23 percent increase in early decision applications this fall.
At the same time, Duke is not immune from the powerful forces that are buffeting the economy. Duke’s endowment, like virtually every other investment fund, has declined over the past few months. In addition, research universities such as Duke are also uncertain about the future of other funding sources, including federal research support.
As of early December, the market value of the endowment was approximately 19 percent lower than it was on July 1. This is a serious concern, but the news could be worse. First, Duke’s investments have been skillfully managed. Over the past 10 years, only one university endowment has outperformed Duke’s, and the decline we have experienced this fall has not been as sharp as many of our peers have reported. Second, it is important to remember that spending from the endowment has historically made up about 15 percent of the University’s annual operating budget – again, a lower proportion than many of our peer institutions. And finally, the impact of this decline on our activities will be tempered by our spending policy, which calls for paying out 5.5 percent of the average value of the endowment over a three-year period.
This policy has kept us from overspending in years when the endowment earned large returns, and lessens our exposure to a sharp downturn now. (For more information about Duke’s endowment and investments, click here.)
Duke is fortunate to have responsible, prudent and creative leadership of both our investments and operations, which has shielded us from some of the worst aspects of this crisis and makes it possible to continue our forward momentum. We need to draw on those same virtues now to face the new facts around us.
While we will have a clearer picture of the future as the winter progresses, I have asked the university’s senior administrators and deans to plan for various scenarios as we develop the budget for the next fiscal year. The specifics will vary by school and program, but our overarching approach includes:
-- Identifying cost reductions, savings and efficiencies in all school and administrative budgets;
-- Recognizing that the current downturn may be of sustained duration and that we must look for both one-time and more durable interventions;
-- Reviewing and potentially delaying proposed capital projects until funding sources are clearly defined; and
-- Seeking resources for our most strategic priorities while continuing to protect our core commitments, including faculty excellence and student financial aid.
We need to regard this as a time of challenge, not of retreat. All of us have been through a mix of better times and leaner times. When leaner days come, a family cuts back on less essential expenses and concentrates on what matters most. That is what Duke must do now, and I ask for your cooperation as we do it. If we do it right, I’m confident that we can make this a time of opportunity, a chance to further strengthen this great school.
Duke’s strong sense of community is its most valuable asset, and this source of wealth continues intact. With deepest thanks for all that you do for Duke and the community, I send my best wishes for the holiday season,
Richard H. Brodhead
10 comments:
"As of early December, the market value of the endowment was approximately 19 percent lower than it was on July 1. This is a serious concern, but the news could be worse. First, Duke’s investments have been skillfully managed."
The 1.2 billion lost would provide 6,000 students full tuition, room, and board for four years.
I suspect that the 19 % loss may be an understatement since, like Harvard/Yale, a significant portion of Duke's assets are in exotic/illiquid type investments ( private equity, real estate, hedge funds )which may have been particularly hard hit and whose values are not always readily available. And the fiscal year is not even half over, with the real prospect of additional losses between now and 6/30/09.
As I commented in a previous post, Duke's investment losses go well beyond losses on its endowment ( $ 6.1 billion as of 6/30/08. ) Duke/DUHS had an additional $ 3.7 billion of investment assets ( including $ 1.3 billion in its pension plan )as of 6/30/08. Applying Duke's estimated 19 % to the total assets ( $ 9.8 billion ) results in losses of nearly $ 2 billion -- and I believe this is a low estimate.
BN
The primary issue is not the loss of value.
Rather, it is the continued approach used to misrepresent the facts.
If Duke mirrored Harvard/Yale as they likely did, then things will get worse due to a misalignment of asset classes.
The fact that the Duke leadership is not transparent, though not a surprise, is significantly different in this situation. Why?
1. They have not learned any lessons on truth, honesty or ethics from the Duke hoax.
2. They are now screwing many more than just the lacrosse team. Any who have donated money, applied to Duke, who is currently students, and/or recruited faculty is at risk of the deal changing.
By the way, the crisis management advice they are receiving continues to be atrocious.
What’s said of people who keep doing the same thing(s) and expecting a different result...?
These reasons, it seems to me, are cause for immediate removal. They continue to think they can get away with their dishonest/immoral acts.
What's the point of all this endowment talk? Surely you know that the country is in financial turmoil and if a 19% loss is all Duke has suffered, it is indeed ahead of the curve.
Do you want Duke to start announcing layoffs? Do you want Duke to bellyache about the economy? Do you want Broadhead to take a salary cut?
What's your point? State it without dancing around the issue or shut up.
Obviously you have implied that you want the gang of 88 fired, which is unlikely to happen, period. Obviously you want Duke to admit failures in the past. They are obvious. In case you haven't been paying attention, Duke is having it's pants sued off and public statements about past failures are unlikely.
Do yourself a favor. On slow news days, post something positive and uplifting. Stop beating a dead horse.
Just like in the Mahatmo death, and the LAX case, and the stripper on campus contradictions and the PLO meeting on campus and the Coach K discussions,brodhead fails this university when it comes to financial matters and the truth.
I beleive that brodhead wishes that he can return to Yale University. For it is obvious he is longing for the old days becasue in the second to last paragragh of his e-mail he clearly calls duke a "SCHOOL" A place he left and was dean of while at Yale University.
Getting Brodhead to tell the truth is tough work.
Thanks for staying at it, John.
Duke '85
Long on puffery, short on specifics. Sounds like a politician.
8:27 - The "point" was clearly made, first by John, then by no J, no P -- It's not about the money, it is about the continued deception employed by Brodhead and "Dick's senior Minions". Steve in New Mexico
@ Anonymous:
Perhaps you could tell us how many millions of Dollars BOT Chairman has made as commissions from misdirecting Duke's endowment investments to their current 19% (but I suspect much higher) losses??
I think John's point is well made(I'm not a DOOKIE) re' the best is yet to come about finances.But ,Pres Broadhead could garner some praise by taking a 50% cut-down to 500K during this time.Certainly,that's good pay.And I wownder if the finances will affect the 'pseudo studies' on your campus.Certainly,when the bullet is bitten in terms of cuts there will be a need to sort actual scholarship vs PC.
Corwin
Post a Comment