[President Richard Joel] offered a small statistical comparison between the performance of YU’s long term investment pool since 2002 versus that of all other university endowments over this period. The comparison purports to show that the compound annual growth rate over the period was 6.3% for YU’s pool vs. 5.3% for the other university endowments, meaning that YU’s investment strategy produced superior results. But a close reading of the comparison raises disturbing questions. For example, why was 2002 chosen as the starting point for the measurement as opposed to fiscal year 2005 (the year in which, according to the article, YU’s current leadership assumed control of the portfolio and sold off more than half of the endowment’s conservative investments)? Why was the comparison made to the endowments of all other universities rather than to peer university endowments with over a billion dollars? Finally, and most troubling, the comparison is based on YU’s “long term investment pool”, which in President Joel’s words, “includes the endowment”, but apparently includes other things as well. What are they? And why didn’t President Joel just offer a simple apples-to-apples comparison between YU’s endowment and other peer endowments? The answer, not surprisingly, is because that simpler and more honest comparison would have told a very negative story: according to the NACUBO Endowment Study used by President Joel, in 2005-2013, YU’s peer endowments grew by a compound annual growth rate of 5.6% while YU’s endowment grew by only 0.37%. That’s less than the inflation rate over this period.
President Joel’s attempt to reframe the discussion as a comparison of returns is also fundamentally mistaken because the proper benchmark for a portfolio’s performance is not its nominal return but rather its “risk-adjusted” return. Riskier portfolios often produce higher results to compensate for their higher risk profile — but does that mean that YU should invest its entire nest egg in a high-risk portfolio? Ultimately, that’s the question — not a comparison of nominal returns – that needs to be addressed when examining whether YU’s leadership was reckless with its endowment money. And President Joel’s response speaks to only one small aspect of YU’s financial performance discussed in the article; he does not address, for example, YU’s massive operating deficits which, according to Moody’s, may cause YU to run out of cash next year.
We have indeed fallen very far when the President of YU responds to an article claimed to contain “half truths and inaccuracies” with his own half truths and inaccuracies. But it did not have to be this way. President Joel could instead have offered a full accounting to the community of the decisions that were made and why … He could have openly acknowledged such mistakes as were made, the lessons learned, the corrective steps being undertaken. He could have laid out a roadmap for YU’s recovery. Like the [initial] article, he could have offered facts and figures. And he could have said, “I recognize that I will have to ask our staff, students and supporters to make painful sacrifices, in part due to decisions that I helped make. Therefore, I am tearing up my employment contract, which under the current circumstances is inappropriate, and will continue to serve as President only for as long as the board wants me and with compensation that is determined by the board to be commensurate with my efforts and accomplishments.”
*********
A comment on the Failed Messiah blog:
[D]oes he take us for fools? If there’s no problem, why has Moody’s steadily downgraded their debt and issued warnings? Why is YU frantically selling off many apartment buildings? Why no mention of the approx. $400M in deficits over the last 5 years?