Endowment in Free Fall, Loses 25.5% in 2008

Georgetown’s endowment lost 25.5 percent of its value in 2008 and dipped below the $1 billion mark as it became yet another victim of the global economic downturn.

The endowment’s value stood at $833 million in Dec. 2008 after it lost $131 million in the last three months of 2008, according to a university statement published Monday.

The loss comes only 16 months after the endowment reached $1 billion for the first time in the university’s history.

Although Georgetown has not yet been forced to take as drastic measures as some other universities, University President John J. DeGioia announced last month that he and senior university staff would voluntarily freeze their salaries until further notice. While faculty salaries typically increase at a rate of 2.25 percent above inflation each year, 2008 marks the first year that the university will be unable to reach that goal since the policy was enacted in 2000.

In addition, Georgetown is also planning on scaling back its construction and capital projects. University officials noted in Monday’s statement that credit options for the construction of the new science building are becoming more limited. In a January statement, the university announced that although Georgetown is pursuing alternative financing options, projects “will be delayed if they require credit financing that is difficult to access in the current economic environment.” The construction of the McDonough School of Business building remains on track.

University officials have stressed that the endowment reduction will not affect Georgetown’s ability to provide financial aid to students.

“We have not seen a dramatic impact on current students’ ability to cover the costs of attending Georgetown and we have been able to work individually with families on a case-by-case basis as needed,” said Chief Financial Officer Chris Augostini in a statement released last month.

“What remains to be seen is the impact that high unemployment, stock market volatility and fewer credit options may have on incoming students,” Augostini added.

In July, Georgetown plans to become a direct lender to students, meaning that students will receive federal loans directly through Georgetown rather than through a private lending company.

“We will begin in a modest way in the coming year, developing a hybrid model that will continue our relationship with student loan companies and banks, and offering an option for federal borrowing that is facilitated by Georgetown,” DeGioia said at a faculty town hall meeting last month. He noted that becoming a direct lender does not mean “lending Georgetown University dollars to students.”

Other steps planned by the university involve restructuring university debt, increasing cash liquidity and implementing more conservative spending practices.

Georgetown’s endowment was ranked 70th in market value among U.S. universities as of July 1, 2008, according to the National Association of College and University Business Officers. Among private institutions, Georgetown ranks 46th.

University officials attribute the comparatively small loss in endowment size to many factors including “reducing exposure to public equity, avoiding hedge fund blowups and maintenance of liquid assets, such as cash contributions,” according to Monday’s release.

“What we’ve been focused on, really starting last year, has been trying to improve our liquidity, which is very good compared to other universities,” Chief Investment Officer Larry Kochard said in the release. “Some universities have really gotten themselves in a bind, but we have the liquidity to meet the payout to the school as well as other commitments that we’ve made.”

Kochard also cited the university’s adherence to the 6 percent rule, in which the portion of university operating expenses funded by the endowment may not exceed 6 percent, as a source of strength amid the turbulent conditions. Currently, Georgetown’s endowment supports approximately 5.7 percent of yearly operating expenses.