The stock market may plummet and the housing crisis in South Florida may continue, if experts are correct in anticipating a recession, but the University of Miami will likely remain unaffected by any such economic downturn.
The university’s financial plan is based on two factors: diversification and long-term investments.
Diane Cook, university treasurer, whose responsibilities include maintaining endowment investments, explained that long-term investments are not subject to the ups and downs of the day-to-day market.
“[The university has] seen recessions in the past,” she said. “I’ve been here for 20 years and staying the course is the best strategy. Our asset allocation doesn’t change much because we are long-term investors.”
The university has a diverse investment portfolio that includes stocks, bonds, commercial real estate and various alternative financial ventures. Such diversification, Cook said, provides balance so that devastation in one area of the market will be off-set by another.
Most private and public higher education institutions have adopted a policy to spend only a set percentage of the three-year average of all endowment investments. For Miami, the annual budget is based on five percent of the market value of all endowment investments over a three-year period, Cook said.
The effect of taking into account the average of the investments over three years is that the yearly spending remains relatively stable.
“Recessions tend not to last more than six months to a year,” Cook said.
Consequently, if a recession does negatively affect the university’s portfolio in a three-year period, it will naturally balance with the highs that follow a recession within the three years.
Another benefit of adopting the three-year moving average policy is that tuition prices are not subject to the market and are not likely to increase due to a recession.
Cook also believes that other aspects of the university, such as employment and construction will not be negatively affected by a recession.
“It might be a good time to construct, since prices may go down for certain projects,” she said.
The university does not factor promises to pledge money into endowments, so it is unlikely that a donor will rescind their gift.
“I’ve never seen a donor take money back,” Cook said. “Some donors will be affected by a recession and may feel less able to give to the university. However, it is not likely to be [an issue].”
Stacey Arnold may be contacted at s.arnold@umiami.edu.
Florida universities’ investments
Market value (in thousands)
Rank June 30, 2007 June 30, 2006 One-year
change
61. U of Florida Fdn $1,219,026 $996,245 22.4%
96. U of Miami $741,382 $620,435 19.5%
132. Florida State U Fdn $548,994 $500,637 9.7%
167. U of South Florida Fdn $388,516 $329,832 17.8%
175. Rollins C $366,594 $310,356 18.1%
270. Florida Atlantic U Fdn $190,212 $168,605 12.8%
323. Stetson U $137,556 $124,428 10.6%
351. U of Central Florida Fdn $116,291 $96,417 20.6%
391. Florida International U $91,876 $80,283 14.4%
400. U of North Florida Fdn $88,785 $76,126 16.6%
454. Florida Southern C $70,332 $62,674 12.2%
462. Valencia CC and Fdn $68,004 $56,968 19.4%
471. U of West Florida Fdn $64,239 $55,035 16.7%
487. Jacksonville U $60,865 $54,286 12.1%
490. Palm Beach Atlantic U $60,595 $56,440 7.4%
Although the university has a plan for economic downturn, students who may be looking for jobs or are investing in the stock market do not have a similar endowment cushion.
Still, students at the University of Miami don’t seem to know – or care – about the recession .
“I’m not aware of the recession,” Brittany Williams, a sophomore, said. “I feel like the youth is very ill informed about what is going on economically.”
Others are going to “stay the course” with their stocks
“I heard the economy bounced back a little, so I’m not going to change anything with my stocks right now,” Zan Ferrari, a sophomore, said.
Sophomore Frank Brand also agrees that he will not change his stocks in light of the possible recession.
“I own a few stocks and I plan on sticking the recession out if there is one,” he said. “When people are afraid, it’s a great time to buy.”
And when it comes to the job market, students still aren’t worried about the impact of a recession.
“I think I will have just as much of a chance of finding a new job now as I did before the recession,” Nick McCarty, a senior, said, “The only obstacle I have for finding a job is my GPA.”
—Nina Markowitz