The financial turmoil that swept the world last year hit the University of Toronto especially hard. Quietly, at a September 29 meeting of the Governing Council’s Business Board, the University of Toronto Asset Management Corporation—tasked with investing the sizable endowment that the university has been accumulating over the past few decades—presented their latest report. The news that William Moriarty, president and CEO of UTAM, brought to Simcoe Hall was almost comical in its grandeur.
In the 2008 fiscal year, the University of Toronto’s investments lost a total of $528.1 million. These losses amount to a 31 per cent loss in the total value of the university’s endowment, and mean that what had already been a bleak financial outlook is even worse than once thought.
During the course of the presentation, Moriarty mentioned that in light of last year’s events, a fresh look at the university’s investment policy needs to take place. Forgiving Moriarty for this obvious understatement, he’s right in saying that the university’s investment policy needs to be thoroughly reviewed. Currently, it allows for hedge fund investments, which are extremely risky in the best of times. Twice now in the last decade—between 2001 and 2003, and now in the last year—the university has lost considerable sums in investments. These losses lead to cutbacks in the faculties which rely on endowed teaching positions, and to the endowed bursaries and grants which so many students depend on to allow them to go to school. Because of the losses last year, there will be no payout of endowment funds to any academic unit this year. The taps are off, and the well is dry.
In many respects, the endowment is relatively young. Unlike the major private universities of the United States, our university has not focused on seeking alumni and business donations until recently. During the 1990s, U of T decided that it would surge ahead of other Canadian public universities and begin to seek a larger endowment with the hopes of using this money in the same way private American universities do: as a capital fund that could yield a large profit through investment. Unfortunately, there can be no window for profit in investing without a similar window for risk, and this scheme possessed much more risk than the endowment had been exposed to in the past. The story of why the university has lost so much money is mirrored in how the market crash came about in the first place: too many people made too many risky investments, all in the belief that a little more profit could be made before the reality of the situation could set in.
There is another question lost in the overwhelming reality of the university’s losses on the market: should U of T be risking these endowments in the first place? Alumni and other donors give money to the university because they trust that those donations will go towards making the university a better place. Whether it is a few hundred dollars or an endowed bursary, donations have been made to the university on the basis that money given to the university will be used by the university. In the face of such a huge loss, how can U of T approach donors in good faith in an attempt to rebuild the endowment? As long as the university seeks large profits through exposing the endowment to market risks, there will be no guarantee that money given will actually be used to better education. Moriarty is right to suggest that the system needs an overhaul, if not for the future of current investments still exposed, then for the satisfaction of those alumni weary of handing their money over to be squandered in the name of profit. A good place to start would be asking whether this institution’s resources should be used to promote learning or profit. One of those goals has been working nicely since 1827; to the other, history has not been so kind.
