Standard & Poor’s Rating Services recently reaffirmed the University of Toronto’s ‘AA’ debt rating, but warned of the likelihood of a downgrade in the next twelve months.
The credit rating agency cited the university’s “exceptional student quality and enrolment demand; strong liquidity; and good government support” as promising financial indicators, but noted that “sizable pension deficit payments and high debt” warranted a negative outlook.
The university’s pension deficit stood at CAD$1.016 billion as of July 1, 2011. The current deficit is largely the result of the recent financial crisis, during which the university’s pension and endowment funds fell sharply following several years of underperformance.
In the year leading up to July 1, 2008, the university’s funds lost over one hundred million dollars; the following year, over one billion. The university’s pension plan performed worst out of 23 Canadian university pension plans measured in 2008 by the Globe and Mail, declining by 29% that year alone.
In response, U of T president David Naylor commissioned a committee to investigate the performance of the University of Toronto Asset Management Corporation (UTAM), a corporation founded in 2000 to “mimic the investing approach developed at Yale and Harvard.” The committee, lead by former chancellor Hal Jackman, published its findings in a report in December 2009, stating that “UTAM’s performance over this period [2000-2009] has not met expectations.” While allowing for the decade’s dual market crashes, the Jackman report nevertheless recommended that UTAM be brought under U of T’s control, with the CEO reporting directly to the university’s president.
Standard & Poor’s report also noted that Ontario’s university pension relief program and the university’s own efforts “have limited the potential scope of U of T’s pension difficulties,” but warned that there would be a downgrade should the university fail to follow through on its approved strategy.
– With files from the Globe and Mail, Reuters, and U of T Magazine.
