In a move involving more risk with Temple’s money, the Business and Finance Committee voted to change its endowment investment policy to a more liberal strategy.
Temple’s return on endowments averaged 8.7 percent on returns in the 1990s, while the national average return on endowments was 12.9 percent, according to a report in The Philadelphia Inquirer. While it is impossible to predict a rate of return for the future, Temple is taking action to better its former rate.
On Sept. 28, the Business and Finance Committee followed a recommendation from the Subcommittee on Investments to gradually change its endowment investment policy from an 87-to-13 fixed income-to-equity ratio to a more lucrative and risky 50-to-50 ratio with the option of going 40-to-60 favoring equity. Fixed income comes primarily from bonds, and equity comes from stocks.
In February, consultants from Cambridge Associates were enlisted to evaluate changes to Temple’s endowment investment policy. They came up with possibilities including a 70-to-30 equity-to-fixed method and a method including real estate and foreign investments. Cambridge Associates is a nationally known firm that advises universities on their endowment investments.
Endowments are lifetime monetary gifts from donors who explicitly define the purposes for which the funds are to be used. For instance, a gift to Temple of $1 million means that Temple invests that $1 million and uses money from interest, dividends and capital gains to fund scholarships, program initiatives and professors’ chairs.
Professors’ chairs are donations to the school for the support of particular departments’ faculty. This can be “used to supplement the pay or pay additional costs, for research, business travel, etc. of the professor who holds the chair,” said Temple treasurer Martin Dorph.
Dorph said that a portion of that also fills Temple President David Adamany’s goal of supporting ongoing projects. These endowments help to lessen Temple’s operating costs.
In compliance with committee demands, Dorph will slowly move current endowment funds in 10 quarterly increments. That leaves two and a half years before the change is completed. Temple already invests about $21 million of its endowment in equity and plans to add another $50 million over the course of the change in strategy.
Temple currently has about $144 million in endowments that it needs to move around to reach the 50-to-50 fixed-to-equity target.
A capital campaign also is in the works to raise an additional $300 million. While this is not the set goal, it is the current figure in discussions.
In the fall of 1999, Temple saw an increase in admissions and state funding increased. With more increases expected, Temple now has the ability to take on more risk with its investments.
“If we weren’t doing so well in admissions, we couldn’t take our present income and invest it this way, “Board of Trustees chairman Howard Gittis told The Philadelphia Inquirer.
Board members will be notified on a quarterly basis of investment standings. Temple’s investments also will be reevaluated on a quarterly basis so that it fits the rigid criteria that the Business and Finance Committee has set up.
These criteria include the percentage of investments that can be held in a single company and a 5 percent cushion of fluctuation, meaning the 50-to-50 prescription is flexible to the point of allowing 45 percent of one investment type and 55 percent of the other. It also sets up a benchmark percentage that Temple’s investments must beat consistently.
A change to Temple’s investment policy is not new. Discussion was made of the possibility back in the 1996-1997 academic year, but Temple faced another year of admissions decline. From 1991 to 1999 Temple faced losses of almost 5,000 students. Funding from the state also did little help, and endowments had hit lows.
The decision in 1989 to move nearly all endowment assets into fixed income investments revealed Temple’s need for a steady flow of income. While investments could have been put into the stock market, the uncertainty that came with the risk proved too much at a time when Temple’s own future was uncertain.
“We specialized in conservative investments…and acknowledged the lesser return,” said Dorph.
The early 1990s were good for Temple, as the bond markets performed extremely well, but that run sputtered in recent years as the stock market reached new highs. During that time, Temple switched its 98-to-2 fixed-to-equity strategy to an 87-to-13 one.