Nov 07, 2009 | 10:55
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Nov 24, 2008
The economy and UCLA – A Q&A with Vice Chancellor Rhea Turteltaub
The economic downturn and volatility in the financial markets are top of mind for UCLA leaders as well as the general public. We asked Rhea Turteltaub, vice chancellor for external affairs, to share her thoughts.
What does the poor economic climate mean for UCLA’s fundraising enterprise?
UCLA has a broad base of generous donors who understand the importance of philanthropy to the campus. I think that’s one reason why higher education has weathered these downturns better than many other sectors of philanthropy. Having said that, no one can dispute that this is a difficult time for many of the people who traditionally donate to UCLA. Interestingly, as of Nov. 24, the value of donations is down about 12 percent so far this fiscal year, but the number of gifts is up 10 percent.
What does the poor economic climate mean for UCLA’s fundraising enterprise? UCLA has a broad base of generous donors who understand the importance of philanthropy to the campus. I think that’s one reason why higher education has weathered these downturns better than many other sectors of philanthropy. Having said that, no one can dispute that this is a difficult time for many of the people who traditionally donate to UCLA. Interestingly, as of Nov. 24, the value of donations is down about 12 percent so far this fiscal year, but the number of gifts is up 10 percent.
Clearly, the university’s alumni and friends are not turning away from the campus. What’s most important is that we are redoubling our efforts with existing donors, ensuring that the rewards and impact of their previous gifts are satisfying, and emphasizing to our potential new donors that higher education is an investment in the future. We certainly must remain sensitive to the potential effect of the economy on any individual’s ability to give, but our professional team is also mindful of the impact this economy is having on our students and their families – and are therefore inspired to keep up a robust and focused effort.
What about the endowment? How has the market slide affected performance?
The downturn in financial markets worldwide is a serious situation and we’re monitoring it very closely. Markets rise and fall regularly, so we always emphasize looking at returns over the long term rather than year-to-year. The goal of the endowment has always been annual returns in the 7-9 percent range, and that’s what we’ve averaged over the past 10 years through both bull and bear markets. In the quarter ending Sept. 30, the investment performance of the UCLA-managed endowment declined by about 10.3 percent. That’s less than the 11.1 percent average decline for our peer institutions. In the 12 months ending Sept. 30, the endowment value fell 12.6 percent, less than the 14.8 percent decline that our peers averaged. By contrast, returns were essentially flat in the fiscal year ending June 30, while the endowment earned about 18 percent in fiscal year 2007.
What about the endowment? How has the market slide affected performance?
The downturn in financial markets worldwide is a serious situation and we’re monitoring it very closely. Markets rise and fall regularly, so we always emphasize looking at returns over the long term rather than year-to-year. The goal of the endowment has always been annual returns in the 7-9 percent range, and that’s what we’ve averaged over the past 10 years through both bull and bear markets. In the quarter ending Sept. 30, the investment performance of the UCLA-managed endowment declined by about 10.3 percent. That’s less than the 11.1 percent average decline for our peer institutions. In the 12 months ending Sept. 30, the endowment value fell 12.6 percent, less than the 14.8 percent decline that our peers averaged. By contrast, returns were essentially flat in the fiscal year ending June 30, while the endowment earned about 18 percent in fiscal year 2007.
Over the long term, the endowment’s broadly diverse investment portfolio has helped to minimize the effects of volatile markets. To put it in informal terms, we’re not swinging for the fences but aiming for stability and reliability. Financial markets have a long history of rebounding after periods of decline, and we’re confident that we have systems in place to weather this downturn. At this time, we are not planning to make any changes to the endowment’s investment mix.
What effect does poor endowment performance have on UCLA programs and operations?
About 30 percent of all gifts to the university are endowed gifts – those intended to last in perpetuity. Most endowed gifts are placed in the endowment managed by the UCLA Foundation. From the endowment, the foundation makes payments to donor-specified beneficiaries, such as institutes conducting research projects or academic departments filling professorships or offering scholarships. Those payouts represent a very small percentage of UCLA’s annual revenues of about $4 billion.
The foundation’s goal is for the overall annual payout to be consistent and sustainable. We do this by evaluating the overall payout not on current market performance but on the inflation-adjusted performance over a 10-year period. So regardless of endowment performance, the goal always is to ensure that beneficiaries receive payouts as expected and scheduled. For example, when the markets declined significantly early this decade, the overall payout from the endowment was reduced gradually over a three-year period and then increased in gradual amounts over the next four years. Even when the endowment generated returns of about 18 percent a few years ago, the foundation didn’t make significantly bigger payouts. In effect, the returns from good years help to ensure predictable payouts in bad years. Maintaining a long-term focus, rather than responding to relatively short-term market adjustments, helps to ensure reliability and consistency. We’re confident this approach will mitigate the effects of market volatility on campus operations – but, of course, we’re monitoring the details very carefully.
What about the state budget? What does that mean for UCLA?
State support for the UC system has been declining for decades and we expect that trend to continue. Today, state funding makes up about 16 percent of UCLA’s total revenues, down from 37 percent 30 years ago. Meanwhile, the needs of students and their parents are greater than ever, with student fees increasing and the general economy straining household finances. All of that argues for an increased emphasis on private giving. While we have to be careful not be view philanthropy as a replacement for state funding, in this environment, gifts to the university undoubtedly will play an increasingly critical role in pursuing campus priorities – maintaining access and affordability and the integrity of the academic enterprise. Part of our job is ensuring that not just state lawmakers but also the general public and donors understand that funding higher education is an investment in California’s future, that every gift to the university helps a prepare a student for a brighter future – and that benefits us all.
For more information, see this University of California faculty and staff newsletter Q&A with Katie Lapp, executive vice president for business operations. Also read a profile of Tracie Christensen, who will assume the post of director of Development on Jan. 1. And find links to additional UC and UCLA budget-related stories.
What effect does poor endowment performance have on UCLA programs and operations?
About 30 percent of all gifts to the university are endowed gifts – those intended to last in perpetuity. Most endowed gifts are placed in the endowment managed by the UCLA Foundation. From the endowment, the foundation makes payments to donor-specified beneficiaries, such as institutes conducting research projects or academic departments filling professorships or offering scholarships. Those payouts represent a very small percentage of UCLA’s annual revenues of about $4 billion.
The foundation’s goal is for the overall annual payout to be consistent and sustainable. We do this by evaluating the overall payout not on current market performance but on the inflation-adjusted performance over a 10-year period. So regardless of endowment performance, the goal always is to ensure that beneficiaries receive payouts as expected and scheduled. For example, when the markets declined significantly early this decade, the overall payout from the endowment was reduced gradually over a three-year period and then increased in gradual amounts over the next four years. Even when the endowment generated returns of about 18 percent a few years ago, the foundation didn’t make significantly bigger payouts. In effect, the returns from good years help to ensure predictable payouts in bad years. Maintaining a long-term focus, rather than responding to relatively short-term market adjustments, helps to ensure reliability and consistency. We’re confident this approach will mitigate the effects of market volatility on campus operations – but, of course, we’re monitoring the details very carefully.
What about the state budget? What does that mean for UCLA?
State support for the UC system has been declining for decades and we expect that trend to continue. Today, state funding makes up about 16 percent of UCLA’s total revenues, down from 37 percent 30 years ago. Meanwhile, the needs of students and their parents are greater than ever, with student fees increasing and the general economy straining household finances. All of that argues for an increased emphasis on private giving. While we have to be careful not be view philanthropy as a replacement for state funding, in this environment, gifts to the university undoubtedly will play an increasingly critical role in pursuing campus priorities – maintaining access and affordability and the integrity of the academic enterprise. Part of our job is ensuring that not just state lawmakers but also the general public and donors understand that funding higher education is an investment in California’s future, that every gift to the university helps a prepare a student for a brighter future – and that benefits us all.
For more information, see this University of California faculty and staff newsletter Q&A with Katie Lapp, executive vice president for business operations. Also read a profile of Tracie Christensen, who will assume the post of director of Development on Jan. 1. And find links to additional UC and UCLA budget-related stories.
