With Wall Street leaving many investors on edge and the $700 billion rescue plan for the nation’s financial system rejected by Congress Monday, Miami University and its investments are also trying to stay afloat in a volatile market.
According to Bruce Guiot, director of investments and treasury services at Miami, the university saw a negative 2.7 percent rate of return on its investments of non-endowment funds during the 2007-08 fiscal year.
Investments of endowment funds were also down, with the university seeing a negative 2.66 percent return rate.
“We thought June (2008) was going to make or break our year,” Guiot said at the Sept. 19 meeting of the board of trustees. “It certainly broke it.”
In total, Miami lost $7 million in investments during FY2007-08, a year when the university was expected to earn $9.7 million from Miami’s stake in the market.
“This is latest wave in a cascade of negative events,” Guiot said. “In these types of markets, there’s no place to hide.”
According to David Creamer, vice president for finance and business services, as of June 2008, Miami has $169 million invested in its non-endowment funds and $166 million invested in its university endowment.
According to Creamer, both funds are used for investing purposes, although endowment funds are monetary gifts to the university with specific instructions as to their use.
Creamer said the university has a diverse investment portfolio, with money in bonds, equities, hedge funds and real estate.
While Creamer said that less than 3 percent of Miami’s revenue depends on investments, the market’s recent roadblocks have resulted in a few visible signs of strain.
In a meeting of the board of trustees finance and audit committee Sept. 5, trustees said that if investment income hadn’t fallen off during the past year, the university’s operating deficit would have been slimmed down to $1.2 million from $1.5 million the year before.
Now, Creamer said, the university is $1.7 million short of balancing the budget.
“From a budgetary standpoint, this is a very different time,” Creamer said at the Sept. 19 board of trustees meeting.
However, Guiot and Creamer are still optimistic.
“While we have negative results, on a relative basis, we’ve done fairly well,” Guiot said.
Creamer said that while the university’s portfolio lost 2 percent in investment returns last year, the market has seen losses of up to 15 percent during the past few months. According to Creamer, the market oftentimes experiences periods of volatility.
In addition, Guiot assured trustees that Miami’s portfolio is diversified and has a stake in the global market. He said the portfolio’s performance is constantly tracked, so that potential risks are properly assessed by investment managers before committing any money.
“I’m confident in our process, our philosophy and our execution,” Guiot said. “(However, this will be a) painful process of purging in order to restore the system to full health.”
While Creamer said he was confident in Miami’s investing strategies, he still said he was doubtful of any market upswings anytime soon.
“There’s a good chance that we’re going to take losses in the upcoming year,” Creamer said.