You have to consider two classes of institutions: 1) research universities that have high overhead costs, and 2) LACs that have low overhead (no med schools, teaching hospitals, grad schools, etc.) but are nevertheless extremely dependent upon their endowments.
Can we have an over/under on the average hit to college endowments for the fiscal year ending June 30, 2020? I’ll start off by taking the “over” at -20% (meaning they will be down on average more than 20%).
Equities have been hit very hard, and so have commodities. Risk parity strategies have been demolished. Corporate debt on a spread-adjusted basis is faring very poorly, and junk is being destroyed.
Other favorite investments for the endowment managers have traditionally been illiquid holdings in real estate, and seed capital VC. There will not be many unicorn IPOs in the foreseeable future I am afraid and commercial rents won’t be so good if no one can go out of their house. International holdings will be hit incredibly hard in local currency terms, and the translation effects when redenominated into USD will be even more brutal.
Only asset class to do really well has been US treasury bonds, the longer the duration the better. Unfortunately, consensus expectations last year were for continual interest rate rises, let’s hope for the endowments’ sakes that there were some contrarians.
Another school in which full pay will be courted: Oberlin College.
Already in deep trouble on an operating basis, Oberlin will be forced to dig very deep into the talent pool to find full pay kids after the endowment hit that is coming.
Research universities may also have cash cow professional schools (e.g. law and business) that do not have the overhead of medical schools.
This boils down to a few key factors as I see them, 1) yes full pay will have a advantage , as they always have, with better HS, better tutors, more money for EC…2) there will less families who can afford full pay in the 2021 class. 3) Colleges will cut aid bc they are taking a hit to their bottomline, less international kids this year, refunds from this spring for dorms, upfront cost to teach online this year and make in the fall. The top 50 schools will be fine, they always are, yes their endowments will take a hit but they will recoup the money down the line. Maybe a year down the line the virus is a thing of the past and international kids come back, they are a few months ahead of us in dealing with it. State flagships will have less state money but that has been happening for a while , they will offset some of this w more full pays of their own, who in the past would go small LAC for double the money. The loser here will be the bottom schools in the 200-400 range smaller LAC and schools already in a dicey finical situation
@NJdad07090 wrote:
“The top 50 schools will be fine, they always are, yes their endowments will take a hit but they will recoup the money down the line.”
I do not agree that the top 50 schools will be fine–especially over the next two admissions cycles.
Even places like Columbia and Brown are somewhat resource constrained by their endowments, to say nothing of places like Vanderbilt, USC and NYU.
The hit to global wealth has already been extraordinary. Capital campaigns (looking at you, UChicago) are going to be impacted, and schools engaging in extensive building projects like Columbia (new campus at 125th street) and Vanderbilt (complete build of residential college system) may feel the pinch particularly hard.
I do not mean to single out those schools unfairly. Many T50 schools are likely to be hurt similarly by such a dramatic change in worldwide economic conditions and outlook.
There is a saying popular among investment managers: “When the tide goes out, you see who was swimming naked.” Yes, we will.
There is a lot going on in the financial markets (for example: talk of commodities such as oil going negative), geopolitically with respect to moves by China & Russia, immediate health concerns over coronavirus, & the US lingering in senseless military operations–developments which are, arguably, reshaping the world as we know it. This will be reflected in the endowments of US colleges & universities.
My best guess is that the top 6 universities by endowment size will be able to continue current practices–but even that is not a certainty.
We already know that Northwestern University–the 9th largest endowment–has been pulling from the endowment to fund current operations before the stock market decline.
Important to know is that endowment funds are not easily accessed. Colleges & universities operate on planned budgets.
My point is that I believe that full pay applicants will get a significant boost during the next two admissions cycles from all but the top 6, 7, 8 or 9 schools with the largest endowments.
If there is a second wave of Covid-19 (coronavirus) in the Fall and a proven vaccine is not available, then online degree & certificate programs will enjoy a new, higher status among students & employers.
P.S. Also, there are issues about the availability & reliability of student visas which affects a substantial portion of the student market for many US colleges & universities. Foreign students are a significant source of revenue for many colleges & universities at both the undergraduate & graduate level. This pool of lucrative applicants is likely to be diminished greatly & the lost revenue will need to be replaced.
Rice seems to have a particularly healthy endowment in view of its size, and its expansion plans have been relatively measured, with a few large projects recently completed. Might be a slightly better bet for students needing aid relative to its peer universities.
It is highly unlikely that any endowment funds hedged against a breakout of a worldwide health pandemic.
This reminds me of the 2006 to 2008 period where an investor foresaw the coming collapse of the financial market due to inflated real estate values & poorly unwritten mortgages and mortgage backed securities. He could not find an appropriate investment vehicle to hedge against a collapse in the real estate & mortgage backed securities market. Eventually he created his own method & reaped substantial (either hundreds of millions or a couple billion dollars) profits.
Of course, one can engage in trading put options contracts, but they expire with time. How does one predict a worldwide health pandemic of a novel coronavirus ? You can’t–unless it is a planned event of which one has inside knowledge of upcoming biological warfare, which this is not.
Again, my point is that almost all colleges & universities are experiencing financial shock that will result in a search for additional revenue. The most readily available source of additional revenue may be full pay students.
When all three of the big 3 US car manufacturers shut down their factories, it is a sign of rough economic times ahead which will not be easily corrected.
The bailout package being debated in the US Senate is mostly about avoiding a depression rather than restoring the economy to what it was. Any espoused optimism will be designed to curtail panic & to calm the public through the upcoming presidential election.
My point is that there will be significant economic changes which will, & must, be reflected in the college admissions’ process.
P.S. The best that we can hope for in the near future is a form of stability in the financial markets, the economy, with respect to the novel coronavirus (Covid-19), and with respect to geopolitical developments around the world. Unfortunately, some will benefit from chaos so stability in all of these areas is unlikely.
With respect to online schools: Will the most elite US colleges & universities offer online degrees ?
With concerns about student visas, this is one way to attract & enroll students worldwide.
Already, many graduate professional degrees are offered online by elite institutions, but none require lab work.
My understanding is that many schools are putting in place plans to allow enrolled international students to do remote learning in the Fall semester, should visas and/or travel be an issue.
Of course, we could be in a situation where everyone is remote learning in the Fall as well.
As a side comment:
China & Russia certainly recovered quickly from the novel coronavirus. Russia had little difficulty with Covid-19 despite sharing a very long border with China. China probably informed Russia months before sharing information with the US as Russia took appropriate action early on–in January.
The hardest hit areas are Italy, Spain, Iran & the US–in addition to China although China did not suffer as much in terms of percentage of population affected.
Russia & China have plans. The US does not. We react. And we get bogged down in pointless, seemingly endless military operations.
The US is clearly the worldwide leader in higher education. Higher education is a huge industry for our economy. Maybe the current crisis will lead to a better use of this immense resource.
My point is that I believe that full pay applicants will get a significant boost during the next two admissions cycles from all but the top 6, 7, 8 or 9 schools with the largest endowments.
@Publisher So you believe this admissions cycle (for years '20-'21) and next ('21-'22) will get a boost for full pay? Or do you think we’re too late for this admissions cycle?
I’m pretty new here. How do people “quote” someone else so that it appears in the gray box within their reply? I tried to copy and paste from Publisher (above) but the quote didn’t show up in the gray box. Sorry–don’t mean to derail, just want to learn how to do it.
With respect to the border and potential virus flows across it, Russia also got lucky. The border between China and Russia happens to be in the parts of both countries which have lower population density (and is not near Wuhan). Also, both countries typically require visas for each others’ citizens to visit.
Of course, both should be expected to take advantage to gain world leadership and influence and promote authoritarian government.
@cuppasbux : You may get a boost if on a waitlist this admissions cycle as most application dates have already passed.
P.S. Hopefully someone with better computer skills can help with your question about quoting from other posts.
The Northern area of Italy had the first breakout of Covid-19. I heard a news report assert that China has a lot of investments in this region of Italy.
Both China & Russia have offered substantial assistance to Italy. Russia has offered to send military troops. China has sent medical supplies.
Italy is vulnerable from financial, geographic & population perspectives. Italy has an aged population & insufficient numbers to populate its rural areas despite the high density population found throughout Europe.
The former Soviet Union country of Yugoslavia shared a border with Italy. Now Slovenia occupies that area near Venice, Italy.
Just beneath the person’s post, you should see some choices. On the left is “Quote.”