The Chronicle

March 19th, 2008

For Duke, a slumping economy could be good

Even as millions of Americans face low house prices and tighter credit due to the looming recession, Duke seems to be staying fiscally sound and prepared to weather any economic disturbances. With assets of around $9 billion, Duke is fortunate enough to have had several years of strong investment returns that will allow the University to continue its expansion and development even when other universities, firms and individuals are forced to make tough economic decisions.
As odd as it sounds, an economic downturn has a silver lining for an institution like Duke. Charles Clotfelter, a professor of public policy and specialist in the economics of education, said an economic slowdown may provide the opportunity for universities to get more done, as construction is a little cheaper and there is some slack in the workforce.

“[For] a university that has a great deal of money saved in the bank like we do and has plans for construction, it’s a good time to be building when other people aren’t,” he said.
Moreover, with a fairly diversified portfolio spread across domestic and foreign assets, it is unlikely that a slump in one market will drastically impact the University’s finances. This is a product of the fast-pace of financial globalization that has lowered barriers to capital movement over the past twenty years and allowed for a degree of stabilization of large portfolios.
The slumping U.S. economy is hurting investors that overexpose themselves to a single asset class, namely sub-prime credit. The recent government-backed buyout of Bear Stearns by JP Morgan Chase is a perfect example. Bear Stearns is perhaps the poster-child of how a financial institution can be damaged by overexposure, as the firm lost billions of dollars due to the sub-prime market and saw two of its hedge funds collapse in July 2007.
For Duke, smart investing and a tendency to avoid exotic and risky securities kept the University from taking a hit to its balance sheets throughout the sub-prime debacle. In May 2006, the Duke University Management Company, the non-profit that manages Duke’s investments, pulled out of the hedge fund Amaranth, just months before its crash. With a cool head and a little luck, Duke might emerge from this economic downturn unscathed.
–Eugene Wang

This entry was posted on Wednesday, March 19th, 2008 at 12:54 am and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed.

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