Many college and universities that have adopted the “Endowment Model” currently have aggressive allocations centered on investing in equities, private equity, more volatile hedge funds and credit asset classes to generate returns in order to meet spending needs.
The fallout from the pandemic has created unprecedented levels of uncertainty around almost all financial variables, including future revenue, potential expense and market returns or losses. The next couple of years will likely result in larger operating deficits and a greater dependence on endowments to fund operational needs, with a limited amount of flexibility due to asset restrictions. Colleges and universities will face a drain on the institution's unrestricted assets, calling into question whether the “Endowment Model” will support their new short and long term needs.
Please join your peers and us for a brief interactive session on how other colleges and universities are responding to some of these pressing challenges.
Key topics of discussion:
- Return profiles – Due to low interest rates, the long-term expected return of the typical endowment asset allocation will be less than the spending rate and will likely be correlated with the financial condition of the institution, exasperating potential financial issues in a downside scenario. What might the overall impact look like?
- Fundraising – How limited will fundraising be for the foreseeable future due to a weak economy and significant demand from competing sources seeking fundraising? What are realistic expectations around fundraising? Will there be an increased dependency on fundraising and what will be the effective ways to do so?
- Operational support – While higher education institutions have historically relied on their endowments to meet a portion of their operating budget, how will that need increase moving forward? A review of operational deficit scenarios in which unrestricted assets in a typical endowment could be quickly depleted. What is the potential impact?
- Asset allocation considerations – How do allocations need to change given the current environment? Should institutions consider separating unrestricted and restricted assets and implement different asset allocations for each?
The goal of this session is to share ideas, questions and experiences among financial executives in higher education.
Andy Daly, CFA
Information provided by SEI Investments Management Corporation, a registered investment adviser and wholly owned subsidiary of SEI Investments Company.
Investing involves risk including possible loss of principal.
A restricted asset is cash or another item of monetary value that is set aside for a particular purpose, primarily to satisfy regulatory or contractual requirements.