17 Comments
Even though Blair from Gossip Girl considers them her “holy trinity,” 2/3 of HYP are officially Big Losers now! (WSJ) (Bloomberg)
Columbia, on the other hand, reports smaller losses. (Reuters)
Morgan Stanley’s new CEO made it through the B-School. (WSJ)
New York Fashion Week keeps on strutting its stuff, despite the recession. (NYT)
And in somber swine news: a Cornell student dies of H1N1. (NYT)
Photo via selfhelpdaily.com
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17 Comments
@Alum CU spends a portion of its endowment each year and determines that portion with a formula set in advance. The formula is designed to balance the university’s spending needs against the need to protect the endowment’s value from inflation.
If the university overstates the amount of its endowment — whether by exaggerating gains or underreporting losses — it would end up spending a higher percentage of the endowment each year than it could actually sustain. One day this strategy would catch up with the university and result in a sudden, catastrophic revenue decrease.
Columbia has no incentive to let that happen. I suppose the endowment managers themselves might have such an incentive, but that presumably is one of the top things the auditors are looking for. Besides, with no stock options, etc., to overvalue, CU offers far less temptation than Enron did.
I agree that the shenanigans you describe are possible. But that is not enough to justify the degree of skepticism you have shown.
@Anonymous you mock alum for his/her willingness to believe the numbers presented, you too could be mocked for your willingness to disbelieve the numbers. if you have some knowledge of accounting and the process of endowment calculation, then by all means use it to formulate an argument–if not, your zealous skepticism really doesn’t do much for anyone because it does little it to advance the conversation.
@Alum First you say you’re skeptical because the numbers weren’t audited, then you say you’re skeptical even though they were. If an audit seemed important when you thought there hadn’t been one, why does it suddenly give “no reason to believe the numbers” when you learn that there has?
Columbia’s numbers are hardly unique. Penn lost an even smaller percentage of its endowment. Harvard and Yale fared worse than most other places, so using them as the benchmark is a mistake.
Why did they do worse? Because they were more heavily invested in the types of assets that suffered the worst losses in the downturn. Having a larger percentage of their endowments in such assets helped when they were appreciating (which is why their endowments outgained Columbia’s before the downturn), but hurt when they started to plummet.
@Incredulous There was NOT an independent audit! You did not correct me on that. An “external” hired auditor is not an INDEPENDENT auditor. Perhaps Penn and Columbia used valuation techniques that made their already-small endowments not seem to shrink so much. Or perhaps everyone does their accounting exactly the same, all the time, with no interest in doing anything any other way, ever, and the people they hire and pay to certify their work are always 100 % honest and truthful, super careful, and totally interested in standardizing accounting practices no matter the business it might cost them in the future.
If you accept Columbia’s numbers so willingly, then the loan office would like to talk to you about a great new private loan company. President Bollinger also has some words to share about eminent domain. I think some administrators at the pediatric neurosciences department also have some great accounting ideas to share with you, too. Because they are all so honest and forthcoming, you know?
@Alum True, all I can point to is an external audit. But all you can point to are your own suspicions. I’ll take my evidence over yours any day.
@Incredulous I think part of the point is that numbers are suspect enough to make them poor evidence for anything, and that, actually, accounting practices are open enough and abused enough across the board that we shouldn’t read anything into public financial statements that don’t have genuinely independent auditing. I think history is on my side here. Skepticism towards the endowment numbers should always be the starting position.
A better question about the current financial health of the institution is how much of our operating budget can we pull from tuition, and not from the endowment. As an ivy with a smaller endowment, we’ve had to pull more from tuition than other institutions like Harvard.
But then again that’s another way of saying that, because we’ve long had a smaller endowment and have fewer perks to cut, we don’t feel as pressed by the economic downtown.
@Alum Justifying your suspicions by calling the figures “suspect” is circular reasoning.
@Incredulous Um, no it’s not. The reasoning is deductive:
1) All financial disclosures are suspect.
2) Columbia’s report on its endowment is form a form of financial disclosure.
3) Therefore, Columbia’s report on its endowment is suspect.
My reasoning is not circular.
We have no reason to believe that Columbia escaped that financial bloodbath that everyone else had to deal with. It’s too easy to use loose forms of valuation, to estimate the value of certain assets at too high a figure, and to do it all according to the rules of accounting.
There are few people who have read the books. You do not have any reason to put any credence in Columbia’s figures. You are relying on blind faith in the institution to use strict, and not loose accounting guidelines to arrive at its current endowment figures, when the incentive is to do otherwise, when the endowment is low to begin with and the university doesn’t want its small endowment to look really small.
There’s a long history of institutions orchestrating inflated or deflated financial figures. Remember Enron? Or think of all the state universities now facing real audits into their endowments from independent investigations started by state legislatures, oversight committees, etc, all things a private university like Columbia doesn’t have to deal with.
Example:
http://chronicle.com/article/Audit-Finds-Mismanagement-of/39027
@Alum Btw, the misreporting in the story you link to came to light because of the type of audit you disparage.
@Incredulous No, that is definitely not true. Read the Columbus Dispatch article that is linked to in the Chronicle article. The audit was not the usual external audit: “The university put Nichols on paid leave last October after a preliminary investigation that was prompted by accusations made through an anonymous university tip line.”
So no, you are incorrect. The kind of audit I’m disparaging did not help. It failed to help. It took an anonymous tip on a phone line!
As long as the “shenanigans” I describe are possible, a high degree of skepticism is warranted. It is possible to play somewhat fast and loose with the numbers during a downturn after years of growth. The catastrophe scenario you describe is currently unlikely–after years of growth–and–again!–it relies on a series of assumptions about internal (read: confidential) accounting practices within the university administration.
There is no reason to believe these numbers!
@Alum Are you equally suspicious of all other universities’ numbers, or is there something in particular about Columbia that you distrust?
You say that the scenario I described is unlikely and I agree, but I think you are presuming that the University’s numbers were accurate until this year. If they have really been exaggerated for many years, the endowment is much smaller than claimed and the university is spending it at an unsustainable rate.
@Incredulous Alum, you still have no reason to believe the numbers, just because Columbia hired someone external to certify that Columbia followed “generally accepted accounting principles” (language from CU’s own financial documents). The point is that it is relatively easy to use some sort of valuation for the university’s assets that makes Columbia look better. Why should we believe that Columbia fared so much better, especially looking at the breakdown of the endowment in 2007?
@Incredulous The endowment numbers are extremely dubious. You have absolutely no reason that Columbia hasn’t used some bizarre valuation to arrive at those numbers. I wouldn’t be surprised if an independent auditor found that Columbia’s numbers were closer to Harvard’s and Yale’s.
@Alum Columbia’s numbers are subjected to an external audit before they are released. That is standard practice for all major colleges and universities.
@... wtf? first wsj article wants me to pay money in order to see it.
@Hypochondriac Fuck fuck fuck fuck fuck.
@I want more info. was the student immuno-compromised/already ill or was this a perfectly healthy student?