Recession's effects on Duke may be minimal, officials say
By: Eugene Wang
Issue date: 3/18/08 Section: News
Last update: 3/18/08 at 6:36 AM EST
Last update: 3/18/08 at 6:36 AM EST
Although the current economic recession has caused the government, companies and individuals to change their financial behavior, Duke officials said they do not foresee considerable adjustments to the University's balance sheet.
Administrators cited Duke's strong credit rating and smart investment strategies as reasons why it is protected against economic disturbances.
A sluggish economy may, however, cause a "scaling back" of larger-scale projects and an increase in the financial aid budget, said John Burness, vice president for public affairs and government relations.
"Usually what happens is that... you do more phasing in of things and you're faced with more tougher choices," he said. "Universities are not recession-proof."
Executive Vice President Tallman Trask called the University a "late retrencher," explaining that the University often refrains from big and sudden changes in activity during an economic slowdown.
The University tends to follow a policy of "slow and dependable increase instead of wild ups and downs," Trask said. "We won't do anything precipitously soon," he said. "We're talking about slowing the rate of increase."
Provost Peter Lange said a weak economy's effect on the University is mitigated by the structure of endowment payouts. The endowment's annual spending is determined by the previous three years' investment returns, so poor returns one year are unlikely to drastically shift endowment spending.
The endowment is well-protected from market shocks, Trask added. With a diverse portfolio including both domestic and international investments, the correlation between endowment returns and U.S. economic performance is minimized. He said state universities are more likely to be immediately affected than private universities, because their budgets depend on tax revenues.
"Endowments tend not to put a lot of weight into very complex derivative products," said Emma Rasiel, assistant professor in economics. "Endowments tend to have relatively long investment time horizons and you just don't tend to see them going for those types of investments."
Administrators cited Duke's strong credit rating and smart investment strategies as reasons why it is protected against economic disturbances.
A sluggish economy may, however, cause a "scaling back" of larger-scale projects and an increase in the financial aid budget, said John Burness, vice president for public affairs and government relations.
"Usually what happens is that... you do more phasing in of things and you're faced with more tougher choices," he said. "Universities are not recession-proof."
Executive Vice President Tallman Trask called the University a "late retrencher," explaining that the University often refrains from big and sudden changes in activity during an economic slowdown.
The University tends to follow a policy of "slow and dependable increase instead of wild ups and downs," Trask said. "We won't do anything precipitously soon," he said. "We're talking about slowing the rate of increase."
Provost Peter Lange said a weak economy's effect on the University is mitigated by the structure of endowment payouts. The endowment's annual spending is determined by the previous three years' investment returns, so poor returns one year are unlikely to drastically shift endowment spending.
The endowment is well-protected from market shocks, Trask added. With a diverse portfolio including both domestic and international investments, the correlation between endowment returns and U.S. economic performance is minimized. He said state universities are more likely to be immediately affected than private universities, because their budgets depend on tax revenues.
"Endowments tend not to put a lot of weight into very complex derivative products," said Emma Rasiel, assistant professor in economics. "Endowments tend to have relatively long investment time horizons and you just don't tend to see them going for those types of investments."
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faculty
posted 3/19/08 @ 8:46 AM EST
The reporter was spun, and while spinning was too dizzy to ask follow-up questions. To Trask: "How far down are our hedge funds?" (He knows the actual numbers. (Continued…)
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