Key Takeaways
- • Cooper Union's endowment, valued at $666.7 million, lost 14% in fiscal year 2009 (ended June 30, 2009) across its hedge funds and other managed assets, according to the New York Times.
- • The school's endowment is currently lower than at the end of fiscal 2008, while the S&P 500 has reached new highs.
- • From 2009 to 2012, a simple 60% stock / 40% bond mix significantly outperformed hedge fund indexes, per the article.
- • The school now plans to charge tuition of an estimated $20,000 a year, ending a tradition of free education dating to its founding.
- • The article attributes the crisis to decades of asset sales, lack of diversification, debt, a costly new building, and weak donor cultivation, with limited oversight by New York's attorney general.
Summary
Cooper Union for the Advancement of Science and Art, which received the land beneath the Chrysler Building from Peter Cooper's heirs in 1902, has long used its endowment to offer tuition-free education through two world wars, the Great Depression and several financial crises. According to the New York Times, the school is now forced to charge tuition of an estimated $20,000 a year, a step that abandons what many consider its most important legacy. Student protesters occupied the president's office during the week of the report.
The Times reports that Cooper Union's endowment, valued at $666.7 million, was invested in alternative assets including hedge funds, a pattern common among endowments and pension funds. The school maintains that it ranked first among American universities for endowment performance as recently as 2009 and managed the financial crisis better than many peers. However, in fiscal 2009 its hedge funds and other managed assets lost 14%. Returns since then have lagged the stock market's recovery, and the endowment today is below its fiscal 2008 level even as the S&P 500 has hit new highs. From 2009 to 2012, a low-fee mix of 60% stocks and 40% bonds far outperformed hedge fund indexes, the article notes. The typical hedge fund fee structure of 2% of assets plus 20% of gains is cited as a drag on returns.
The Times argues that hedge fund underperformance is only part of the problem. It attributes the crisis to decades of management decisions, including piecemeal asset sales, failure to diversify, borrowing, and construction of a lavish new building. After the 2000-01 stock market decline, the managed endowment, excluding the Chrysler Building, lost half its value. The article also says the school failed to cultivate donors, leaving many graduates with the impression that it was wealthy and did not need alumni support. It notes limited supervision by New York's attorney general, who oversees nonprofit institutions.
The Times reports that Cooper Union's endowment, valued at $666.7 million, was invested in alternative assets including hedge funds, a pattern common among endowments and pension funds. The school maintains that it ranked first among American universities for endowment performance as recently as 2009 and managed the financial crisis better than many peers. However, in fiscal 2009 its hedge funds and other managed assets lost 14%. Returns since then have lagged the stock market's recovery, and the endowment today is below its fiscal 2008 level even as the S&P 500 has hit new highs. From 2009 to 2012, a low-fee mix of 60% stocks and 40% bonds far outperformed hedge fund indexes, the article notes. The typical hedge fund fee structure of 2% of assets plus 20% of gains is cited as a drag on returns.
The Times argues that hedge fund underperformance is only part of the problem. It attributes the crisis to decades of management decisions, including piecemeal asset sales, failure to diversify, borrowing, and construction of a lavish new building. After the 2000-01 stock market decline, the managed endowment, excluding the Chrysler Building, lost half its value. The article also says the school failed to cultivate donors, leaving many graduates with the impression that it was wealthy and did not need alumni support. It notes limited supervision by New York's attorney general, who oversees nonprofit institutions.
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