Economic Uncertainties

January 31, 2009

In a mid-December letter to the Duke community, President Richard H. Brodhead highlighted the current economic uncertainty, but noted, "By many measures, Duke continues to enjoy great strength and stability." At the same time, he added, "Duke's endowment, like virtually every other investment fund, has declined over the past few months. In addition, research universities such as Duke are also uncertain about the future of other funding sources, including federal research support."

Brodhead noted that as of early December, the market value of the endowment was approximately 19 percent lower than it was on July 1, when it stood at $6.1 billion. "This is a serious concern, but the news could be worse. First, Duke's investments have been skillfully managed. Over the past ten years, only one university endowment has outperformed Duke's, and the decline we have experienced this fall has not been as sharp as many of our peers have reported. Second, it is important to remember that spending from the endowment has historically made up about 15 percent of the university's annual operating budget—again, a lower proportion than many of our peer institutions."

Finally, the impact on the university's activities "will be tempered by our spending policy, which calls for paying out 5.5 percent of the average value of the endowment over a three-year period," Brodhead said. "This policy has kept us from overspending in years when the endowment earned large returns, and lessens our exposure to a sharp downturn now."

Brodhead outlined several steps related to the financial downturn. They include identifying cost reductions, savings, and efficiencies in all school and administrative budgets, and reviewing and potentially delaying proposed capital projects until funding sources are clearly defined. He also reaffirmed Duke's "core commitments," including faculty excellence and student financial aid.

Earlier this fall, Harvard University said the value of its $36.9 billion endowment had fallen 22 percent in the course of four months, and that the total decline for the full fiscal year was expected to be as much as 30 percent. Yale University's endowment had fallen at least 13.4 percent over the same period. Harvard's endowment provides 34.5 percent of its operating budget; Yale's endowment provides 44 percent.

According to higher-education finance experts cited in The New York Times, endowment-loss figures given by each university are essentially projections; those figures are likely to shift by the end of the fiscal year.