The University of Toronto’s aggressive investment policies have come under fire after its $5.5-billion endowment and pension fund posted a 30 per cent shrinkage for 2008.
The university announced a $1.3-billion loss on its assets on Tuesday—a 29.5 per cent drop in pension funds and 29.4 per cent in endowments. The losses are worse than the average 18 per cent decline in large pension funds, reported the Globe and Mail.
U of T Asset Management Corporation, an independent subsidiary in charge of the university’s assets, says that it expects to stick with current risk management practices.
“A major change in strategy right now would be like locking the barn door after the horses have gone,” said U of T’s VP business affairs Catherine Riggall. “The University is a very long-term investor and we expect that there will be periods when markets are down. Over the five year period 2003-2007 the compound average result was 11.5 per cent—well above our target return of 4 per cent plus inflation.”
“Unfortunately, the severity of the one-year results completely eliminated the strong out-performance that had been achieved over the previous five years,” said a communication from the university.
This isn’t the first time U of T’s stocks have taken a hit since UTAM was established in 2000, bringing in a similar investment model to major U.S. schools like Princeton and Harvard. In 2002, the assets plunged by $320 million. At the time, UTAM cited the downtown in global equity markets.
“The UTAM board has discussed the various views on the benefits and downsides of currency hedging and has recently moved back to a 50-per-cent hedged policy,” Riggall said. Though this represents a return to slightly more conservative investment policies, she said it is likely that previous positions will return as risk becomes more manageable.
Endowment payouts, previously expected to contribute $62 million next year to scholarships, aid, bursaries, and endowed programs, have already been slashed. Commenting on whether the endowment losses would have a major effect on students, Riggall said, “Income from the endowment is a very small percentage of the total revenue of the university. The commitments to access and student aid remain in place and will be met.”