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Board of Trustees is optimistic about 2009

Group tries to hammer out budget solutions

By Jeffrey Hake

Posted on Feb. 12, 2009, at 12:00 a.m.

Jay Roney was not kidding around. “Most of what we have to talk about today is not good news.”

Despite the occasional outbreak of laughter emanating from the members of the University of Maine System Board of Trustees’ Investment Committee, most jokes made around the conference table at its meeting Tuesday, Feb. 11 involved how “crappy” things are in the American economy. “It’s a technical term,” explained James Mullen, a committee member.

Roney is a partner with NEPC, an investment consulting firm based out of Cambridge, Mass. that the University of Maine System consults to manage its pension and endowment funds held the floor for the majority of the meeting. He opened with a review of the market in 2008.

“In summary, 2008 was the worst anyone in this room has ever seen. Being diversified has not helped . market fundamentals did not work. Risk was punished.”

According to Roney, the market as a whole had twice the volatility at the end of 2008 as it has ever had in the midst of past disasters, including Sept. 11. The market’s volatility index also remains at disaster level. Essentially, “there’s no direction at all in the market.”

While ongoing disaster was the theme for the national economy, Roney explained to the committee members why the University of Maine System was in relatively decent shape for 2009.

Maine’s investments are strong compared to its peer group, which is comprised of other large institutions like universities and non-profits, according to Roney. He insisted that, because of comparatively favorable conditions, UMS does not have to sell its investments that fuel its pension and endowment funds. It can instead afford to buy when other investors are selling low.

Peter Small, an institutional research analyst for the system, had further news about the system’s massive operating budget shortfall, reporting that December brought in the system’s first positive return on its investments, just more than $1.2 million, in more than six months.

This lightened the mood in the room, since the system’s investments have hemorrhaged more than $16 million since July. Early reports for January’s returns also portend gains on system’s investments, though the month’s reports will not be available for another week.

“Still,” interjected board member Rebecca Wyke, “we’re not out of the hole yet. [As of December] we’re still well over $14 million in it.”

The committee heard several recommendations from its members, but perhaps the most important came from Roney – it was a call to inaction. While investment diversification has been ineffective at stemming the retreat of the university’s operating and other funds, he advocated for the fundamental institutional investment standby.

“If you believe in capitalism, the [diversification] strategy should work,” Roney said, invoking the basic tenets of economics. “If we can be blamed for anything, it’s for sticking to our guns.”

The committee members generally agreed, but Tracy Elliott, director of finance and controller of the University of Maine System, noted that the chief financial officers of the seven campuses were essentially “split down the middle” about how to deal with the financial crisis.

“Our campuses are being hammered in these tight fiscal times [so whether investments are dealt with aggressively or conservatively] . it’s a double-edged sword.”

Other committee action items included the removal of funds from the ailing State Street active management fund – this makes up about $3.3 million or 7 percent of the system pension fund – and moving the money to the Russell 2000 index, with plans to move it again in the near future.

Janet Waldron, vice president for administration and finance, insisted that students will remain the focus of the Investment Committee and the system Board of Trustees.

“We want students to have a positive experience, but it’s a tough time.” She added that some private Maine colleges and universities are gaining in enrollment while system schools are stagnating. It may seem counterintuitive in a time of economic straits, but due to private schools offering grants to their students instead of loans they are becoming increasingly attractive to students. Waldron insisted that this was because of their small size, and it was not something the far-larger the University of Maine System would be able to offer.

Overall, the feeling at the Investment Committee meeting was strained optimism, a result of the shreds of budgetary hope sprinkled on top of a serving of bleak economic predictions. Summarizing the last report of the meeting, Small reiterated, “we recovered about $1 million in December, and if January holds, we will see maybe another million. It’s good, but the hole is pretty deep.”

“Well,” said James Mullen, grinning, “keep your fingers crossed.”

“And stay hopeful,” added Wyke, adjourning the meeting on those words.

This entry was posted on Thursday, February 12th, 2009, 12:00 am. You can follow any responses to this article through the RSS feed.