Stock market turmoil has “hurt” Northwestern’s endowment but the university “entered this period of uncertainty in a very strong financial position,” University President Henry Bienen wrote in a letter to the Northwestern community on Thursday evening.
“We cannot control the national and international economic forces that are sweeping through our financial institutions,” Bienen wrote. “But we can consider thoughtfully the potential impacts and plan accordingly, and I assure you that we’re doing just that.”
In the past weeks, the Dow Jones Industrial Average has fallen to as low as 7996.72, after reaching its record high of 14164.53 in October of last year.
At the end of September, the university’s Chief Financial Officer told North by Northwestern that the university puts more than one quarter of its endowment in stocks, but that the university had enough funding “so that students won’t be affected.”
“Obviously we’re concerned when there’s a market dislocation like this,” William McLean said at the time, but he added that “we’re well balanced and hopefully things will settle back down.”
As of the end of June, the university had $7.2 billion in its endowment, its financial safety cushion. McLean said in September that 26 percent of the money was invested in the stock market, with 12 percent in the U.S. and 14 percent in foreign markets.
McLean said at the time that the university wouldn’t be getting rid of all its stock investments in the near future.
“In an economic crisis, the last thing you want to do is panic and sell,” he said.
Bienen added that the university wasn’t sure how the economy would affect “financial aid requests or the ability of students to obtain loans in the coming year,” but “Northwestern remains committed to providing the necessary financial assistance so all of our students,” he wrote.
Meanwhile, “applications for undergraduate admission are running well ahead of last year’s record pace,” Bienen wrote. The university expects a rise in applications to its business and law schools,” he said.
We reprint Bienen’s letter below:
Dear Northwestern community members:
I’m sure that many of you have been following the recent economic news very closely. Clearly, economic fluctuations of this magnitude affect Northwestern, just as they affect all of us individually.
Fortunately, Northwestern entered this period of uncertainty in a very strong financial position. That financial strength is the result of sound management, generous gifts from donors and good investment strategies. Northwestern’s endowment has grown significantly in recent years, but like all endowments, has been hurt recently by the market’s steep decline. However, because the policy we employ for determining how much money from the endowment we spend each year also considers the average portfolio over time, inflation, budget needs and other factors, the impact of the market’s performance is moderated to some extent.
We are now taking prudent steps to ensure that our finances can continue to support our academic and research activities. We are consulting with the Board of Trustees, deans and school and area budget managers as we begin our budget planning for next year. As part of that, we will look very closely at any incremental costs, and we are not likely to add new faculty or staff positions. We also will review carefully the budgets for planned capital projects. We will continue to meet with other groups across the University in the next few weeks as we consider specific measures that Northwestern might take. At the same time, we are not planning any personnel reductions other than those that normally occur, such as when a funding grant expires.
In the meantime, applications for undergraduate admission are running well ahead of last year’s record pace. While it’s still early in the admissions cycle, applications to both the law school and Kellogg also are expected to increase this year. We don’t know yet how the economy will affect financial aid requests or the ability of students to obtain loans in the coming year, but Northwestern remains committed to providing the necessary financial assistance so all of our students, even those with great financial need, can afford to come to Northwestern.
For most people, the major economic upheaval that we’re now experiencing understandably creates a feeling of uneasiness. We cannot control the national and international economic forces that are sweeping through our financial institutions. But we can consider thoughtfully the potential impacts and plan accordingly, and I assure you that we’re doing just that. In its 157-year history, Northwestern University has weathered some very difficult economic times, from the lean years following its founding to the dot-com bust earlier this decade. Through all of those times, the University has remained a citadel of teaching, research and scholarship. With continued prudent financial management and your assistance, I am confident that Northwestern will continue to be a leader in the academic community and a financially secure institution.
Henry S. Bienen