The University's endowment was valued at $2.01 billion at the end of 2008, a top administrator said at a faculty meeting Tuesday, offering a hard reckoning for the first time of the enormous losses suffered in the last six to eight months.
Before the announcement, from Executive Vice President for Finance and Administration Beppie Huidekoper, the University's only recent statement on the endowment had been a January e-mail from President Ruth Simmons. In that message to the community, Simmons said Brown was working under the assumption that the fund would be worth roughly $2 billion at the end of June.
The University had not provided an explicit estimate of the endowment's current worth.
The endowment hit a high-water mark of $2.8 billion last summer, but has lost almost 30 percent of its value since then.
Despite the fact that six more months of market turmoil could make the University's $2 billion projection for June seem optimistic, Huidekoper said she still expects it to be accurate.
"We were and still are expecting that the endowment will neither increase or decrease" between December and June, she wrote in an e-mail to The Herald. "But who can forecast?"
Huidekoper cautioned in her presentation to the faculty that it is difficult to estimate the size of the endowment with great precision because "our private equities and real assets" cannot be marked to market.
Huidekoper also provided insight into the Corporation's decision at its meeting last month to deepen budget cuts the administration had proposed.
Simmons had presented a fiscal plan to the University's highest governing body that included $60 million in reductions to planned budget increases by 2014. But the Corporation, feeling more pessimistic about the economy, left College Hill having asked for more reductions, and Simmons announced those cuts would be closer to $90 million. While the administration's proposed budget had assumed that returns from the endowment would be flat in 2009 and return to 10 percent growth thereafter, the Corporation recommended that the University plan for negative 5 percent returns in 2009 and 5 percent increases in following years.
Huidekoper acknowledged that the Corporation's outlook was "very grim," but told the faculty it "easily could be worse."
The Corporation similarly lowered expectations for future revenue growth. The $550 million general budget that Simmons proposed to the Corporation assumed a yearly revenue growth of 3 percent, an estimate that was itself down from the 5 percent growth projected last May. But the Corporation encouraged the administration "to be more pessimistic than we had been," Huidekoper said, and approved a new budget based on the assumption that revenue would increase at just 2 percent per year.
Between this fiscal year and the next, total revenues are only expected to increase by about 1 percent, Huidekoper added in an e-mail.
Using the Corporation's reduced revenue assumptions, the University now projects revenues of $610 million by the fiscal year that starts in 2014. That is $60 million more than current levels, but "much of that will be eaten up by financial aid and facilities and inflation," Huidekoper said.
The Corporation rejected a plan to increase by 2 percent the annual rate at which the University draws on the endowment, Huidekoper said. Brown's current budget is structured to limit the rate at which it draws on the endowment to 5.5 percent annually, based on a three-year running average of the endowment's value.
The approved budget maintains the current policy. Because of decreased market values, the endowment payout for the next fiscal year, which will be kept at 5.5 percent of the past three years' average, will represent a 1 percent decrease in terms of its contributing to the operating budget from this fiscal year's payout.
If the University continues to base its payout on the three-year average, economic conditions indicate that endowment payouts will decrease for the next two years, Huidekoper said.
The University should not "make decisions based on what you're seeing right now," Simmons said in response to a faculty member's question about whether the Corporation's projections were pessimistic enough given the poor status of the stock market. The S&P 500 has fallen 22.9 percent since January 1.
"We have to be prepared for worse" than what the Corporation has projected, Huidekoper said , and also "hopefully be ready for better."
