As financial markets continue to experience volatility, Georgetown’s endowment saw a 9.5 percent drop during the third quarter of 2008, ending at $964 million on Sept. 30.

The endowment, which hit the $1 billion mark for the first time about a year ago, saw a 12.5 percent loss in 2008 through September, but officials say the hit could have been much harder.

Global equity markets (MCSI World) have lost 26 percent in the same time frame. And Moody’s Investors Service recently projected losses of 30 percent for college and university endowments, overall, this year.

“Georgetown has constructed a well-diversified portfolio across many asset classes, which has helped cushion the blow from the severe decline in public equity and bond markets,” says Lawrence Kochard, chief investment officer.

Although alternative assets have reduced the volatility risk of the portfolio, he says it introduces liquidity risk.

“Managing our liquidity risk has always been a priority,” he says noting that Georgetown has sufficient liquidity to meet its obligations and will likely be in a position to take advantage of the illiquidity in the markets over the next year or two.

Since the economic downturn, Georgetown’s financial team has monitored market fluctuation daily, continued to raise cash from more liquid managers and taken measures to lessen risk.

Still, officials say no one can immediately predict what direction the market will take. Sound management of the university’s financial plan may soften the sting of market losses, but the overall impact on the university remains unclear.

“The financial crisis may affect any number of revenue streams into colleges and universities, whether in the form of endowment returns, donations or federal grants,” Georgetown President John J. DeGioia said in a letter to faculty and staff released on Nov. 5. “… We are avoiding quick-fix responses and managing our investments for the long term.”

Christopher Augostini, senior vice president and chief financial officer and treasurer, agrees.

“The economy will certainly be a challenge and could be for a sustained period of time,” he says. “But what we know is that the economy won’t stay like this forever. We know that over the next year or year-and-a-half, it’ll be challenging.”

Georgetown’s financial team will continue to focus on managing investments and developing a financial plan that will enable the university to meet strategic needs during the current economic challenge.

“We continue to manage prudently,” Augostini says, “and I appreciate the support of our campuses and colleagues as we continue this work.”

Source: Blue & Gray (November 17, 2008)