Jan. 27, 2009

Despite downturn, Cornell's endowment is in good shape, chief investment officer says

Robert Barker/University Photography
James Walsh meets with students in his office in this file photo from 2007.

Despite the economy's downturn, Cornell's endowment is in relatively good health, according to James Walsh, the university's chief investment officer.

While the endowment has decreased by 27.3 percent in the past six months, on average it has increased by 6.7 percent each year over the past five years, he said.

"We are a long-term investor with a perpetual timeframe, compared to those investors who need their money today," Walsh said. "In the long term, we're actually in a very good place. The endowment is structurally strong. We've got a lot of cash on the balance sheet, which gives us the opportunity to invest going forward, and we don't have to sell if we don't want to. Plus, we've got a very engaged investment committee working alongside the investment office to identify the best opportunities."

In his Jan. 25 message to the Cornell community on the best ways to manage the university's finances in the face of the national economic crisis, President David Skorton noted "the loss of 27 percent in our endowment over the past six months." However, he said, "in order to maintain our historic commitment to student financial aid and to fund the two financial aid initiatives announced last year, there will be an additional endowment draw of $35 million for undergraduate financial aid in 2009-10."

Walsh noted that Cornell is less vulnerable to the market's vicissitudes than peer universities, because it doesn't rely on its endowment as heavily as others to cover the operating budget. The endowment pays for about 11 percent of the university's day-to-day expenses, according to Joanne DeStefano, vice president for financial affairs. That's less than half of what some other universities draw from their endowments. "Such schools as Harvard and Yale have relied up to 30 percent to 40 percent on their endowment for several years," Walsh says.

Cornell's endowment managers have been taking several measures to safeguard assets and leverage market opportunities. As the financial markets began to weaken in the fall, they significantly reduced the endowment's exposure to equities and commodities, resulting in a cash position of around 10 percent at the start of 2009. This not only slowed the decline of the endowment's value as the market weakened, it also provided money to increase investments in specialist credit and in distress debt managers.

"While no one can deny that there is a lot of uncertainty concerning the outlook going forward, assets appear much better valued today than they have been in some time," Walsh said. "And when we're looking to get returns to the university over the next five to 10 years, we think we're in a good position to do that."