Endowment stands at $65.5 million

Roger Williams University's endowment is down over 22 percent, according to Vice President for Finance James Noonan.

"We were down 31 percent at one point," Noonan said.

RWU's endowment, as of Friday, Nov. 27, is $65.5 million. The number has risen 7.83 percent this fiscal year, according to Noonan.

"This year's been pretty good," Noonan said.

At the end of the 2009 fiscal year, the endowment was $67 million.

The current figure reflects $3.5 million that was taken out to fund operations for this year and the $14 million that was taken out for building expenses, Noonan said.

The building funds were kept in a cash account, Noonan said, meaning that they were not invested in the marketplace and were unaffected by market changes.

In 2003, the endowment was $48 million. It peaked in the fiscal year of 2007 at $115 million, Noonan said. It hit it's lowest point since the fiscal year 2003 on March 2, 2009, when it sunk to $54 million, according to Noonan.

"We've still almost doubled in the past seven years, so it's not terrible," Noonan said.

Noonan cited the stock market and economy as the main reasons for the drop.

The endowment consists of the schools' investment portfolio and endowed funds.

About seven percent of the endowment is permanetly restricted, meaning the same amount of money must always be there. This money is used for endowed scholarships. The university also has temporarily restircted funds, which they can't touch, according to Noonan, and are used to replenish the permanetly restricted funds should the amount decrease.

"The more we get of the permantely restricted endowed scholarships, the better off we are, because those provide scholarship money for students," Noonan said.

The university can spend four to five percent of the three-year average of the endowment for operating expenses, according to Noonan.

"So we have about $4 million in our operating budget from the endowment," Noonan said.

"What's going to happen next year, is it's probably going to be more like $3 million ... that means we've either got to raise tuition to get that million dollars or reduce expenses," Noonan said.

"What we've done is we've reduced expenses, and you can do that in the short term, but in the long term that becomes more difficult to do, so then if we had a continuation of that situation, then we'd have to go back and get that money through a tuition increase," Noonan said.

RWU is invested in U.S. equities, international equities, hedge funds, real estate funds, real assets, hot assets and other things, according to Noonan.

"Investing in hedge funds can be a good play as long as the hedge fund manager divulges all of his or her information," sad Michael Melton, Director of the Center for Advanced Financial Education and Associate Professor of Finance.

"What we need to understand is in this new market hedge funds, like all investements, aren't going to show the excessively high returns that we saw in the mid-90s up until 2007," Melton said.

The university also has teasury bills, which are paying zero percent interest. Noonan said.

"It's the equivalent of putting it into a mattress," he said.

Individuals can buy government bonds and expect to get some interest in the end, Melton said.

"The government has kept interest rates so low so that institutions can borrow cheaply ... the bad news is endowments don't want to invest in them because they're not getting a big return," Melton said.

"Histrocially, endowments invest in not only equities, but also bonds (debt) and other various instruments such as real estate or commercial properties, or commercial investments and government securities," Melton said.

"We've been reconstructing the portfolio, adjusting the asset allocation to a more diverse portfolio so we can take the bumps in the road a little bit better," Noonan said.

"Diversity is everything as we move forward," Melton said.

"Today, to diversify a portfolio you need to be invested in a multitude of financial assets but also you need to diversify globally," Melton said.

"Even when the U.S. market isn't doing well, it doesn't mean that other markets aren't doing well," Melton said. There are other countries that are going to perform well when we're not performing well."

"We were tracking right with the market," Noonan said. We were slightly better than the market."

Noonan cited the diversification of the portfolio as the mean reason the endowment has not dropped to the same percentage level as the marketplace.

He credits Cambridge Associates, the company that handles RWU's portfolio, with keeping the endowment as stable as possible.

"Cambridge Associates reallocated the portfolio to mitigate risk in the future," Noonan said.

Endowment data beginning in 2003 is available in The Roger Williams University 2008-2009 President's Report.