Kristin Reynolds was featured in a recent article on NEPC's perspectives and the university-focused peer roundtable series.
Immediate stresses brought on by COVID-19 challenged colleges and universities and made them realize the potential impact on their operations and liquidity longer-term, according to new research.
General investment consultant NEPC’s Peer Roundtable Series: Multifaceted Challenges Facing Universities gathered responses from university CIOs and CFOs on the acute pain and cash flow challenges that institutions face compared to the global financial crisis of 2008/2009 as well as the solutions they are focused on to make sure students can return to campus this fall.
COVID-19’s onslaught forced operations to halt and students to leave campus and request refunds, leaving universities to find creative solutions to problems that they never could have anticipated under normal circumstances, according to Kristin Reynolds, partner and co-lead of NEPC’s endowment and foundation practice.
“While everybody was feeling pain immediately, it was likely a vortex for a lot of colleges and universities,” she said. “What people are really grappling with is the unknown of the current pandemic and when they’ll be comfortable coming back to school full-time and in-person.”
Roundtable participants shared that they found pockets of money to support day-to-day operations, which in turn strained cash flows and left the need to create liquidity. Institutions called on donors and tapped credit lines to raise short-term capital, but fundraising slowed and the focus shifted to providing student loans to support enrollment and re-enrollment.
Reynolds finds that the current market environment feels different compared to the great financial crisis in 2008 and 2009 as universities presently face an unknown that cannot be predicted.
“The major differences are much wider today than in 2008/2009,” Reynolds said. “It’s still unknown how it’s going to affect the economy, but certainly [affects] universities and bringing students back to campus.”
One of the roundtable participants estimated that enrollment would be down 20% in September, while NEPC is also hearing that expenses on many schools’ operating budgets cannot be reduced—a major concern facing administrations and endowment officers—largely due to employing staff, delivering classes and the need for dormitories.
“You cannot sell those in the short-term and you can’t be that short-sighted so there are a lot of mounting costs across the backdrop of lower revenues and potentially more support to their students from even lower revenue impact,” Reynolds said.
Following the major drawdown in March, many participant cios and cfos referred back to 2008 and 2009 where they knew the crisis was financially driven and where because “they could also understand that the fundamentals of the market and the economy have a better picture into what types of liquidity they would need in a near-term basis and adjust,” Reynolds said.
Today, institutions feel like their investments were positioned well for being later in the cycle, according to Reynolds, who also thinks the layered-on element of the global pandemic created widespread uncertainty for many institutions.
“On a go-forward basis, [institutions are] feeling like the potential outcome for the expected return for their volatility has widened significantly, which make it really difficult to manage liquidity versus opportunities in the market,” she said.
Although it has been a reality for several years, institutions are asking for additional support from their endowment assets as many have been impacted by declines in state funding supported by the CARES Act, according to the research.
Reynolds said institutions asking for additional support need to consider how long the funding should sustain the university, however, an uncertain timeline makes answering this question difficult.
Despite difficulties in the current environment, Reynolds finds that institutions have benefitted from some factors, one being time.
“They were able to slow their pace of their private investment commitments and therefore the opportunities that arose in April and May were different than in June and July,” Reynolds said. “I think it gave folks the time to really assess opportunities.”
Thinking back to 2008/2009, she doesn’t feel time pressure was on the forefront for any institution.
When conducting a flash poll, Reynolds found colleges and universities “were more apt to raise capital in the debt markets,” and believes that was “an interesting way to close the funding down in the near-term and then start to buy yourself some time to figure out the strategy.”
Ultimately that strategy shows that in the near term universities have found ways to raise liquidity that did not impact the endowment corpus.
NEPC conducted two roundtable sessions in April and May for the research and each were attended by five university cios and cfos. The complete paper is available for download here.