THURSDAY,MARCH 27,2003
NEWS
THE UNIVERSITY DAILY KANSAN = 5A
Stock market losses affect Endowment Association
By Lauren Airey
lairey@kansan.com
Kansan staff writer
Although the stock market has been dropping for the past three years, the Kansas University Endowment Association hasn't felt the pinch until now. Its effort to curb the effects of the slumping stock market will mean less spending money, which could affect faculty salaries and assistance that deans have come to count on.
Losses
Every February, the University's Endowment Association recalculates the spending amount that invested funds provide to the University for the next school year. These funds help pay for scholarships, fellowships and faculty awards. In a memo from Dale Seuferling, association president, to fund account representatives, Seuferling said "current spending must be reduced." The result of last month's recalculation was a 20 percent loss in
money available to spend from the permanent, endowed funds. The cut was announced in late February.
In a response memo to the University community, Chancellor Robert Hemenway said, "I believe this change is a prudent course of action, but it will mean a significant reduction in spending."
With endowed funds, the entire amount is invested and only the income produced through investment returns is used for the purpose specified by the donor, said John Scarffe, director of communications for the Endowment Association. The Endowment Association's policy has been a payout of about 6 percent, with 1percent covering administrative costs and 5 percent towards professors and participants. This spending rate will not change.
The Endowment Association is also affected by the spending cuts. Scarffe said the Endowment Association had two staff layoffs,
and several positions would go unfilled. The Endowment Association is also in the process of figuring out a budget for next year that incorporates the 20 percent cut.
Investment strategy
Of the Endowment Association's total assets, more than 70 percent represent major investment programs.
Endowed funds and other long-term funds are collectively invested in the Endowment's Long-term Investments Program. It consists of nine investments managed by fund managers that each specialize in one of the nine.
"Most of our funds are invested in equities, or stocks, and not as much in bonds," Scarffe said. "Over the long term, our investments in equities do well."
By the end of January, the Endowment Association had spent 58 percent more than the same time during the previous year
"When our financial committee sat down to calculate how much funding would be available
for next year, it became really obvious that if we continued to spend at that rate, we would cut into the principle amount and the principle would start to go away," Scarfe said.
The Endowment Association's long-term investments in fiscal year 2002 experienced a loss of 7.9 percent. Over a 10-year period, however, its average investment performance was up 10.1 percent annually. Therefore, the investments are still performing better than expected.
"We could sell our stock, but then you just lose what you have when you do that," Scarfe said. "Our philosophy is to ride out the stock market, so in the long term, we come out better."
The Endowment Association's assets totaled $887.8 million for fiscal year 2002, a decrease in value of 7 percent. This decline was caused by the poor condition of the stock market, which resulted in lower contribution revenue and high investment losses.
according the Endowment Association's Annual Report 2002.
The Endowment Association's funds are not completely tied to the stock market, though. The ongoing construction projects, such as the new engineering building, will not be affected by the cut in available endowed funds. The money for these projects comes from expendable funds that are not invested in the stock market.
"A significant amount is not tied into endowed funds," Scarfe said. "There is cash we manage and real estate that is not affected by endowed funds."
Reactions and solutions
Of 153 University employees making $100,000 or more yearly. 55 are faculty whose salaries are supplemented by the Endowment Association. These faculty members are often distinguished professors and endowed chairs. The supplemental money came from the permanent, endowed funds that were cut.
Although Scarfe said he empathized with the deans and faculty members affected, the money just wasn't available.
William Barnett, distinguished professor of economics, is partially paid by Endowment Association private funds. Barnett said the dean of liberal arts and sciences, Kim Wilcox, would meet with all distinguished professors May 2. The meeting will be an update on the college and include budget planning.
"We're meeting with the dean in a couple of weeks, but until then I just don't know what's going on," Barnett said.
The Endowment Association will increase its efforts to raise expendable funds, funds that won't be affected by the stock market. Scarfe said the Endowment Association would approach donors and ask them to step up and cover the shortfalls in funding.
Edited by Melissa Hermrech
Wartime may be good time to get into stock market
Recently someone told me, "Next time we're getting ready to go to war, remind me to put all my money in the stock market."
Of course that was last week, when Wall Street saw its best week in more than 20 years. But stocks plummeted Monday after news from Iraq indicated the war would be longer and bloodier than expected.
Despite wavering stocks, wartime may not be a bad time to start investing.
Dan Gaumer, investment adviser with Gaumer Financial Services, said the market shifted with the public's perception.
But the reality of the stock market situation is surprisingly optimistic, he said. Oil, gas and banking industries are currently undervalued, giving investors the opportunity to buy low and later sell high.
COMMON CENTS
Although opportunities in single-stock investments are promising, Gaumer said first-time investors like students should start with mutual funds.
Mutual funds are a collection of stocks that an investment company, such as a bank or brokerage, manages on behalf of investors. The advantage of mutual funds, Gaumer said, is that individuals don't have to pick and choose individual
Nicole Roché nroche@kansan.com
stocks.
Your mother's advice holds true with investing: Don't put all your eggs in one basket. Diversification is key when selecting stocks. Because mutual funds include 100 to 150 different stocks, your entire portfolio won't be dragged down if one or two
stocks perform poorly.
Roger Schenewerk, a financial adviser with David M. King & Associates Ltd., said that during wartime people generally made investment decisions based on fear or greed.
Taking advantage of fluctuations in the market is dangerous for the short term, he said. Also, constant fluctuations in the market can mean stressful times for
"If either of these emotions is driving your decision, you're more likely to buy when things are high and sell when things are low," Schenewerk said. "Which is the opposite of what you should be doing."
people temporarily investing large amounts of money.
Schenewerk also suggested a diversified, global mutual fund for students who wanted to invest for the long term. Bonds are also a less risky option for students.
Now is an ideal time to purchase stocks and mutual funds because the market tends to have its most growth in April, May and November, Gaumer said.
Gaumer said students should ask their brokers about the beta, or risk factor, of a stock. After buying the stock, students should re-evaluate the companies each quarter to make sure its management or philosophy hasn't
changed.
"You have to do your homework," he said.
From first-time to big-time investors, mother's advice rings true yet again.
Each week reporter Nicole Roché covers a different consumer issue. She is a Wichita senior in journalism.
If you have ever shoplifted and you would like to share your experience, contact Nicole Roché at nroche@kansan.com. A shoplifting survey will also be posted online at www.kansan.com.
The City of Lawrence Human Relations/Human Resources Department and The Lawrence Human Relations Commission are pleased to present:
Free Seminar for Tenants and Prospective Tenants
Saturday April 5,2003 9:00 a.m.-3:00 p.m.
- What your landlord's responsibilities are.
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Community Building Lower Level Meeting Room 115 W. 11th Street Lawrence, Kansas
Call 832-3310 for more information. This seminar, including lunch, is free of charge and open to the public.
Free Seminar for Landlords, Owners and Property Managers
Friday April 25, 2003 12:30-4:30 p.m. Buffet served immediately following seminar
Holiday Inn Holidome 200 McDonald Drive Lawrence, Kansas
Call 832-3310 to register. This seminar, including the buffet, is free of charge and open to the public.
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