Stock market dips blamed for UH Foundation losses

By Beverly Creamer
Advertiser Education Writer

The University of Hawai'i Foundation has lost more than a quarter of total portfolio value — or $25.9 million in investment earnings — because of stock market downturns in the past two years.

From this past July to September alone, it lost $10.1 million.

"We got hammered," said Bill King, the foundation's new chief financial officer. "It's a significant impact."

The foundation is used to finance student scholarships, endow chairs, and pay for faculty support and other programs. Each department that relies on foundation money will have its allotment reduced 2 percent this year, or a total of $3.7 million.

However, most of the scholarships and awards already have already been paid out and most of the 18 chairs and professorships have enough money to continue. The university expects to work with the foundation and donors to pay for whatever positions still need money.

Some of the shortfall will be made up from money unspent from past years that had also come from the interest on endowments. It's up to the deans of each department to decide how money will be spent, or to save it for larger costs. According to the fund managers, there's $7.3 million left from past years.

All money for this fiscal year has been moved out of the endowment to avoid market volatility, officials said.

King and Betsy Sloane, UH Foundation president, briefed UH deans yesterday on where trims might be possible to their supplementary department finances, which come from the interest on private gifts and donations managed by the foundation.

"We're not alone," said King. "Everybody's feeling the pain, whether it's a personal account or otherwise."

Richard Gushman, chairman of the board of trustees of Campbell Estate, and head of the UH Foundation's investment committee of volunteers, said the losses are in a middle range when compared to foundations across the country.

"A mid-20 percent drop in the UH foundation endowment over the last two years would be very much in the mid-range in all of the investment classes in the country at that time," he said.

"And it's important to keep in mind that that happens to be exactly how much it's gone up in the previous two years."

Gushman said that some of the indexes that track the market and review endowment funds show a drop of between 30 and 50 percent. Packard Foundation, one of few whose losses have become public, has dropped to $5 billion from $16 billion in the same time frame, he said.

"This is the worst drop in the U.S. securities market since the Great Depression," he said.

UH Foundation managers credit the medium-level losses to a mixed portfolio of investments in large, medium and small companies, the U.S. bond market and abroad. Portfolio management is overseen by Merrill Lynch.

"That's the beauty of asset allocation," said King. "It protects you from the extremes. You need to balance all of these elements together. The reason we didn't lose 50 percent is because of being partially in a fixed-income category that has offset the losses of the large companies."

In the past year, the foundation has shifted some of its assets into "a more cautious stance" by moving more into bonds, a section of the market that has held up most strongly, King said.

In comparison to an average of other university foundations, UH has made bigger gains in good years, but suffered slightly larger losses in bad years, according to a study by the the National Association of College and University Business officers.

Reach Beverly Creamer at bcreamer@honoluluadvertiser.com or 525-8013.