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October 29, 2009

FY09 net assets, endowment down

Although Pitt’s research and tuition revenues increased in fiscal year 2009, a drop in the endowment contributed to the largest-ever decline in the University’s net assets.

Pitt’s net assets fell to $2.6 billion as of June 30, a decrease of more than 17 percent from the $3.14 billion held by the University at the end of fiscal year 2008.

The $540.5 million decline is the University’s largest ever, according to John Fedele, associate director of news. He said the last decrease occurred in FY02. At that time, Pitt’s net assets lost $14.3 million, or 0.8 percent, falling to $1.86 billion from $1.87 billion in FY01.

“Declines in net assets are almost always related to endowment declines so we have never had anything of that magnitude before both because the endowment was much smaller and the percentage losses were much lower,” said Fedele.

The University’s endowment lost nearly 22 percent of its value in fiscal year 2009, according to Pitt’s FY09 audited financial statement presented Oct. 16 to the Board of Trustees audit committee.

Worth nearly $2.4 billion at the end of FY08, the endowment fell to just under $1.87 billion as of June 30, 2009. The percentage decline was in line with the pain felt by many other universities with large endowments. Harvard reported a 29.5 percent decrease in its endowment value; Duke lost 24 percent.

In an already dismal year for investors, a portion of Pitt’s decline was attributable to the alleged securities fraud involving the operators of Westridge Capital Management and related firms, with whom Pitt had invested funds. (See June 11 University Times.)

In a joint complaint filed by Pitt and Carnegie Mellon University Feb. 20 in federal court in Pittsburgh, Pitt sought damages in excess of $65 million from the fund operators and their related firms; CMU, which also had investments with Westridge, sought damages of more than $49 million. (See March 5 University Times.)

Pitt’s year-end financial statement gives a clearer picture of its investment with Westridge. In a note on the endowment investment, the University reported the value of its investment with Westridge at $34.9 million, a figure that reflects a 50 percent write-down from the last recorded fair value.

Arthur G. Ramicone, vice chancellor for Budget and controller, said Pitt’s original investment with Westridge was $70 million. “There are assets, so we do expect some return of those monies,” he said, noting that Pitt made the decision to write down half of its investment with Westridge “based on what we knew in terms of the assets that still exist.”

As part of the ongoing legal proceedings, Westridge’s assets have been frozen and a receiver appointed to manage them.

Ramicone said 50 percent is “conservative in terms of what you’d expect to get back,” but declined to hazard a guess at the best-case scenario or how long it might take to see the money returned. “There is a lot of pending litigation. It’s too hard to say,” Ramicone said.

“The financial condition of the University is still very strong,” Ramicone said, noting that Pitt’s bond issue last spring was well received.

“Bondholders purchased that debt, so they had the confidence that the University could repay them going out 30 years,” Ramicone said. “It’s unfortunate that everyone who had investments took a hit. The good news is we don’t rely as heavily on our endowment as some larger private institutions and so we’ve been able to maintain operations,” he said, estimating that endowment income represents 4-5 percent of Pitt’s operating budget.

Two very different stories are told in FY09’s financial reports, Ramicone said. “If you look at the endowment, the change in net assets, it’s a very, very difficult year. But if you look at the operations — the normal operations of the institution — it was a very good year. Enrollments are up; tuition revenue is up. Research revenues are up. For those two primary parts of our mission, education and research, it’s as good a year as we’ve had.”

Research grants and contracts were the biggest contributor to Pitt’s operating revenues, rising to nearly $654 million in FY09 for a gain of nearly 2 percent over the prior year.

Net tuition brought in more than $426.1 million, up 8.8 percent over the prior year. FY09 exceeded Pitt’s tuition budget by a large margin because more students accepted offers to attend the University and retention was better than anticipated, with more students returning than would typically be the case, Ramicone said.

Gifts and pledges for FY09 stood at $54.67 million, far less than FY08’s $132.59 million, which was touted as Pitt’s best-ever fundraising year. FY08 was bolstered by several large gifts including $41.3 million from engineering alumnus John A. Swanson, $13 million from the Richard King Mellon Foundation and a $12 million gift to Pitt-Johnstown from the estate of an anonymous alumnus.

“We didn’t have anything of that magnitude in fiscal ’09,” said Ramicone. “We had some million-dollar gifts, but we didn’t have eight-figure gifts.”

Compensation was the largest expense on Pitt’s balance sheet. Total compensation rose from $931.1 million in FY08 ($717.3 million in salaries and wages plus $213.8 million in benefits) to $987.4 million ($762.1 million in salaries and wages and $225.2 million in benefits) in FY09.

Utility expenses also rose, from $47.6 million in FY08 to $55.3 million in FY09.

Although the FY09 report has yet to be posted, the University’s audited financial statements are available online at

Looking ahead, Ramicone expressed some optimism. “The markets bottomed out in early March, there was a pretty big snapback through June 30 and then they’ve continued since June 30, so there’s been a pretty good bounce-back in assets,” he said.

Kimberly K. Barlow

Filed under: Feature,Volume 42 Issue 5

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