Nonprofits Uneasy About Turmoil's Effect on Endowments
Thursday, October 2, 2008
Officials at foundations, schools and hospitals across the Washington area voiced concern yesterday about the long-term damage that financial market turbulence could do to their endowments.
Already, the nation's financial crisis is wreaking havoc on the endowments of some area nonprofit organizations, which rely on those investments to fund capital projects and cover operating expenses.
The Community Foundation for the National Capital Area, one of the region's biggest charitable grantmakers, said its endowment lost about $40 million during the three months that ended Tuesday. "We've never seen anything quite like this," said Kenny Emson, a senior vice president who oversees the foundation's investments. ". . . It's been a pretty shocking quarter."
Representatives of Suburban Hospital in Bethesda and Adventist HealthCare, a nonprofit organization that runs two hospitals in Montgomery County, said they are monitoring the bond markets to make sure that their institutions remain insulated from the financial crisis.
Eric Kessler, managing director of District-based Arabella Philanthropic Investment Advisors, who advises nonprofit groups and foundations, said, "The foundations are now really starting to get very skittish.
"If you look at these nonprofit institutions that service the neediest people in our community, those people's own assets are taking a hit personally, and now the community institutions they rely on for support are taking a hit and they don't know where to turn," he said.
Universities and private schools nationwide were alarmed this week when Wachovia Bank effectively froze the short-term investment accounts they rely on as checking accounts to make payroll and other expenses. As part of its sale to Citigroup, Wachovia stopped managing the Commonfund, a nonprofit organization that runs short-term investment funds for about 1,000 colleges and independent schools.
Commonfund officials announced an infusion of capital yesterday, even as they sought to replace Wachovia. Commonfund is liquidating about 32 percent of the schools' short-term investment accounts, spokesman John S. Griswold said, adding, "We would hope that 32 percent being made available would help most through the next months."
The Wachovia sale will affect about 50 students at Marymount University in Arlington County who had loan packages with Wachovia. They will need to find a loan provider for the spring semester, said Chris Domes, a school vice president.
Holton-Arms School's endowment, valued at about $50 million, has remained relatively stable. "We've lost some money, but so has everybody," said Susanna Jones, head of the Bethesda school.
Like many other schools, Holton-Arms determines the amount of money it takes from the endowment each year based on a three-year average, which insulates the endowment from dramatic swings in the financial markets, Jones said.
"Obviously, it means that when the market goes way up, it takes longer before you benefit from that, but also when the market goes way down, it also protects you."
Staff writer Christopher Twarowski contributed to this report.