The Economy and its Effect on Higher Education

William F. Jarvis, Managing Director, Commonfund Institute

EDUCAUSE Live! Web Seminar
March 17, 2009

12/09/21
Market Headlines | Setting the Context

 Bursting bubbles and the ripple effect

 Credit market freeze
 Volatility returns with a vengeance
 Consumer wealth declines by between $10-12 trillion
 Central banks become ATM machines
 Recession is here: how long will it last?
 The repricing of risk

2
 Market Stress Events
S&P 500 Index
2002 DotCom
Credit Crisis
Hangover
(2007)
1800 (Mar 2002 - Sept
?
2002)
LTCM & Russian
1600 Debt Crisis
(July 1998 - Oct
1998)
1400

1200

1000

800
Kuwait Invasion
Market Crash
(Aug 1990 – Feb
600
(October 1987)
1991)

400

200

0
1985

1986

1987

1988

1990

1991

1992

1993

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007
1989

1994

2008
Source: Bloomberg, S&P 500 Index, January 1985 – October 31, 2008

3
 Regional Performance

July '07 - June '08 3Q08

10 10

4.64
5 5

0 0

-5 -5
Percent (%)

Percent (%)
-10 -8.81 -10 -8.44

-11.35
-12.04
-15 -13.12 -15

-17.65
-20 -20
-20.67 -20.77

-25 -25

-26.95
-30 -30
MSCI MSCI World MSCI MSCI Japan S&P 500 S&P 500 MSCI Japan MSCI World MSCI MSCI
Em erging ex US Europe ex US Europe Em erging
Markets Markets

Source: Factset

4
 S&P 500 | Historical Downturns

1972-1975 1980-1983 1987-1988 1990-1991 2000-2003 2007-11/20/2008

(33 months) (32 months) (15 months) (17 months) (37 months) (14 months)
60%
51.8%

40%
32.0%
29.1%
22.2%
18.8%

?
20%

0%

-20% -15.8%

-23.8%

-40%
-30.2%
?
-46.2% -46.3%
Peak to trough "drawdown"
-51.44%
-60% Percent change in 12 months following trough
Years to
Recovery 5.8 0.4 1.7 0.3 4.7 ?

Source: Bloomberg

5
 U.S. Recession History – The Last 150 Years
Peak to Trough
December 2007 (IV)-March 2009 + 15 + ?
March 2001(I)-November 2001 (IV) 8
July 1990(III)-March 1991(I) 8
July 1981(III)-November 1982 (IV) 16
January 1980(I)-July 1980 (III) 6
November 1973(IV)-March 1975 (I) 16 1945 – 2001
December 1969(IV)-November 1970 11 10 Cycles
April 1960(II)-February 1961 (I) 10
August 1957(III)-April 1958 (II) 8 10 Month Average
July 1953(II)-May 1954 (II) 10
November 1948(IV)-October 1949 11
February 1945(I)-October 1945 (IV) 8
May 1937(II)-June 1938 (II) 13
August 1929(III)-March 1933 (I) 43 1919 – 1945
October 1926(III)-November 1927 13
14
6 Cycles
May 1923(II)-July 1924 (III)
January 1920(I)-July 1921 (III) 18 18 Month Average
August 1918(III)-March 1919 (I) 7
January 1913(I)-December 1914 (IV) 23
January 1910(I)-January 1912 (IV) 24
May 1907(II)-June 1908 (II) 13
September 1902(IV)-August 1904 (III) 23 1887 – 1919
June 1899(III)-December 1900 (IV) 18 10 Cycles
December 1895(IV)-June 1897 (II) 18
January 1893(I)-June 1894 (II) 17
17 Month Average
July 1890(III)-May 1891 (II) 10
March 1887(II)-April 1888 (I) 13
March 1882(I)-May 1885 (II) 38
October 1873(III)-March 1879 (I) 65
June 1869(II)-December 1870 (IV) 18
April 1865(I)-December 1867 (I) 32
October 1860(III)-June 1861 (III) 8
June 1857(II)-December 1858 (IV) 18
0 10 20 30 40 50 60 70

Duration in Months 1857 – 1885

6 Cycles
30 Month Average
Source: NBER

6
When Bear Markets End
The Standard & Poor’s 500 Stock Index

Data for the Current Bear Market is preliminary through 12/31/2008.

NOTE: Data includes post-WWII Bear Markets as defined by the Standard & Poor’s 500 Stock Index.

Source: Aronson Johnson Ortiz; Standard & Poor’s; Crandall, Pierce &Company

7
7
 MOVE

50
100
150
200
250
300

0
Aug 1998

Source: Bloomberg
Dec 1998
Volatility

Apr 1999

Aug 1999

Dec 1999

Apr 2000

Aug 2000

Dec 2000

Apr 2001
VIX Index (right axis)
MOVE Index (left axis)

Aug 2001
August 1998 – December 2008

Dec 2001

Apr 2002

Aug 2002

Dec 2002

Apr 2003

Aug 2003

8
Dec 2003

Apr 2004

Aug 2004

Dec 2004

Apr 2005

Aug 2005

Dec 2005

Apr 2006

Aug 2006

Dec 2006

Apr 2007

Aug 2007

Dec 2007

Apr 2008
265
10/13/2008

Aug 2008

Dec 2008
0
10
20
30
50
60
70
80
90

VIX
81

190

40
11/20/2008

12/31/2008

40 12/31/2008
 Yields (%)
Yields (%)

0.0
0.4
0.8
1.2
1.6
2.0
2.4
2.8
3.2
3.6
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
31 Jan 97
30 Apr 97 05 Jan 07
19 Jan 07
31 Jul 97
02 Feb 07
31 Oct 97 16 Feb 07
31 Jan 98 02 Mar 07
30 Apr 98 16 Mar 07
31 Jul 98 30 Mar 07
13 Apr 07
31 Oct 98
27 Apr 07
31 Jan 99 11 May 07
30 Apr 99 25 May 07
31 Jul 99 08 Jun 07
Short Term Markets

31 Oct 99 22 Jun 07
06 Jul 07
As of September 30, 2008

31 Jan 00
Money Market Stress

20 Jul 07
30 Apr 00 03 Aug 07
31 Jul 00 17 Aug 07
31 Oct 00 31 Aug 07
14 Sep 07

3 Month T-Bill vs. 3 Month LIBOR Spread

31 Jan 01
28 Sep 07
30 Apr 01
12 Oct 07
31 Jul 01 26 Oct 07
31 Oct 01 09 Nov 07
31 Jan 02 23 Nov 07
30 Apr 02 07 Dec 07
21 Dec 07
31 Jul 02
04 Jan 08

9
31 Oct 02 18 Jan 08
31 Jan 03 01 Feb 08
30 Apr 03 15 Feb 08
31 Jul 03 29 Feb 08
14 Mar 08
31 Oct 03
28 Mar 08
31 Jan 04 11 Apr 08
30 Apr 04 25 Apr 08
31 Jul 04 09 May 08
31 Oct 04 23 May 08

Source: Bloomberg, Short term rates ending date 9/12/2008, 3 Month T-Bill vs 3 Month LIBOR Spread end date 9/17/2008
06 Jun 08
31 Jan 05
20 Jun 08
30 Apr 05 04 Jul 08
31 Jul 05 18 Jul 08
31 Oct 05 01 Aug 08
31 Jan 06 15 Aug 08
29 Aug 08
30 Apr 06
12 Sep 08
31 Jul 06 26 Sep 08
31 Oct 06
31 Jan 07
30 Apr 07
31 Jul 07
30-Day ABCP
90-Day ABCP

31 Oct 07
Fed Funds Target

31 Jan 08
3-Month T-Bill Yield

3.15

30 Apr 08
9/30/2008

31 Jul 08
Real Interest Rates

12
Fed Funds-CPI yoy, Aug-78 to Aug-2008

10

6
Percent Change

-2

-4

-6
1980

1982

1984

1986

1994

1996

1998

2006

2008
1978

1988

1990

1992

2000

2002

2004
Source: Bloomberg

10
 U.S. Dollar Index
Weekly Data 8/27/1971 - 10/03/2008 (Log Scale)

160 160

152 152

145 145

138 138

131 131

124 124

118 118

112 112

107 107

102 102

97 97

92 92

87 87

83 83

79 79
1985

1988

1990
1991

1994
1984

1986
1987

1989

1992
1993

1995
1996
1997
1998
1999

2007
2008
2005
1973
1974

1977

1981

1983

2000

2003
2004

2006
1972

1975
1976

1978
1979
1980

1982

2001
2002
(I 240)

Source: Ned Davis Research

11
 Inflation
January 2003 – November 2008

10%
PPI (YoY)
PPI ex Food & Energy (YoY)
8%
CPI (YoY)
CPI ex Food & Energy (YoY)
6%

4.2%

4%
Percent (%)

2.0%
2%
1.1%
0.4%
0%

-2%

-4%
Jan 2004

Jan 2005

Jan 2008
Jan 2003

Jan 2006

Jan 2007
May 2003

Sep 2003

May 2004

May 2005

Sep 2005

Sep 2006

May 2007

May 2008
Sep 2004

May 2006

Sep 2007

Sep 2008
Source: BLS

12
 Energy Costs
Daily Data 7/30/1992 – 2/12/2009 (Log Scale)

150 145.7 150

129 West Texas Spot Crude Oil 129
111 111
95 95
82 77.0 82
71 69.8 71
61 61
52 55.2 56.2 52
45 50.5 45
46.8
39 37.2 37.8 40.7 39
33 33
29 30.8 29
25 25.2 25
21 21
18 18
16 17.5 16
14 14
12 12
S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S DM J S DM J S D M J S D
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
84 83.9 85.3 84
80 Extreme Optimism 79.5 80
76 77.5 76
74.0
72 71.3 72
68 68.5 68
64 64
60 60
56 56
52 52
48 48
44 44
40 40
36 39.2 36
36.8 38.0
32 32
28 28
24 27.0 27.5 24
20 Extreme Pessimism 23.0 20
2/12/2009 = 24.85
19.6
NDR Crowd Sentiment Poll for Energy Futures (Seven-Day Smoothing)
(DAVIS60)

Source: Ned Davis Research

13
 Housing Price Appreciation …. Depreciation
January 1987 – November 2008
26.6% Price Decline
June 2006 to October 2008
25% June 2006 250
S&P/Case-Shiller Home Price Index 226.3
(Composite of 10)
20%

15% 200
Year over Year Change
November 2008
10% Composite-10
166.05
Year Over Year Change

5% 150

Index Value
0%

-5% 100

-10%
Oct 1989 April 1991
82.4 76.8
-15% 50
6.8% Price Decline
October 1989 to April 1991
-20%

-25% 0
1989

1995

1997

1998

2000

2001

2003

2004

2005

2006

2007
1988

1990

1991

1992

1993

1994

1996

1999

2002

2008
Source: Standard & Poor's

14
 The Housing Sector | Housing Starts & Permits
1/31/1955 - 1/31/2009
Housing Starts (Year-to-Year Change)
90 1/31/2009 = -56.2% 90
80 80
70 Shaded areas represent National Bureau of 70
60 Economic Research recessions. 60
50 50
40 40
30 30
20 20
10 10
0 0
-10 -10
-20 -20
-30 -30
-40 -40
-50 -50

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
90 90
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
-10 -10
-20 -20
-30 -30
-40 -40
-50 1/31/2009 = -50.5% -50

(E238) Building Permits (Year-to-Year Change)

Source: Ned Davis Research

15
 NAHB/Wells Fargo Housing Opportunity Index
Quarterly Data 3/31/1992 - 9/30/2008

68 68
9/30/2008 = 56.1%
66 66
64 64
62 62
60 60
58 Mean = 58.6% 58
56 56
54 NDR estimates from Q2 2002 to Q3 2004 54
52 52
50 50
48 48
46 46
The HOI measures the percentage of homes sold that are affordable
44 to families earning the median income during a specific quarter. 44
42 42

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
12 12
10 Affordability Rising 10
8 8
6 6
4 4
2 2
0 0
-2 -2
-4 -4
-6 -6
-8 -8
Affordability Falling
-10 -10
-12 NAHB/Wells Fargo Housing Opportunity Index (Year-to-Year Point Change) -12
-14 9/30/2008 = 14.1 -14

(E0238A)

Source: Ned Davis Research

16
 Employment
January 1986 – October 2008
Black Monday S&L Crisis Mexican Debt Russia/ LTCM NASDAQ Credit Crisis |
October 19, 1987 1990 Crisis | 1995 1998 Collapse | 2000 2007 – 2008

10% 4%

3%
8%

Nonfarm Payroll Employment

Civilian Unemployment Rate

2%
6%

1%

4%
0%

2%
-1%
Civilian Unemployment Rate (left axis)
Nonfarm Payroll Employment (right axis)
0% -2%
1986

1987

1989

1990

1991

1992

1993

1995

1996

1997

1999

2000

2001

2003

2004

2005

2006

2008
1988

1994

1998

2002

2007
Source: BLS

17
 Unemployment Rates For Industrialized Nations
Monthly Data 1/31/1993 - 1/31/2009

Unemployment Rates For Industrialized Nations

7.0 Industrialized Nations' 7.0

6.8 Weighted Unemployment Rate 6.8
6.6 12/31/2008 = 6.8% 6.6
6.4 6.4
6.2 6.2
6.0 Mean = 6.2% 6.0
5.8 5.8
5.6 5.6
5.4 5.4

7 United States 7
1/31/2009 = 7.6%
6 6
5 5

10 Euro-Zone 10
9 12/31/2008 = 8.0% 9
8 8

5 5
4 Japan 4
12/31/2008 = 4.4%
3 3

United Kingdom
8 1/31/2009 = 3.8% 8
6 6
4 4
11 Canada 11
10 1/31/2009 = 7.2% 10
9 9
8 Source: Haver Analytics 8
7 7

(IE100)
1998

1999

2000

2009
2001

2002

2003

2004

2008
2005

2007
1994
1993

1995

1996

1997

2006
Source: Ned Davis Research

18
 Percent Change From Quarter One Year Ago

Source: BEA
-2%
0%
2%
4%
6%
8%
10%
1983

1984

1985
U.S. Real GDP

1986

1987

1988

1989

1990

1991

1992 Quarterly GDP (%)

1993
-2%
0%
2%
4%
6%
8%

1994
1Q00

19
2Q00
1995 3Q00
4Q00
1996 1Q01
2Q01
3Q01
1997 4Q01
1Q02
1998 2Q02
3Q02
4Q02
1999 1Q03
2Q03
2000 3Q03
4Q03
1Q04
2001 2Q04
3Q04
2002 4Q04
1Q05
2Q05
2003 3Q05
4Q05
2004 1Q06
2Q06
3Q06
2005 4Q06
1Q07
2006 2Q07
3Q07
4Q07
2007 1Q08
2Q08
2008 3Q08
 Real GDP Growth Deviation from Trend
(Percent Change)

Advanced economies 2.0

Emerging and developing economies
1.5

.0

0.5

0.0

-0.5

-1.0

-1.5

-2.0

-2.5

-3.0

-3.5

1980 1985 1990 1995 2000 2005 2009 -4.0

Source: IMF

20
GDP Growth Well Below Potential | A Great Moderating Inflation Event
3/31/1960 - 6/30/2008
Quarterly Data 3/31/1960 - 6/30/2008
CPI, GDP Growth and Productivity Growth
14 Consumer Price Index 14
13 Year-to-Year Change 13
12 6/30/2008 = 5.0% 12
11 11
10 10
9 9
8 8
7 7
6 6
5 5
4 4
3 3
2 2
1 1
9 Non-Farm Productivity 9
8 Year-to-Year Change 8
7 6/30/2008 = 2.9% 7
( )
6 6
5 5
4 4
3 3
2 2
1 1
0 Real GDP 0
Year-to-Year Change
-1 6/30/2008 = 2.2% -1
-2 ( ) -2

GDP Growth Less Productivity Growth Demand in Excess of Productivity

5 5
4 4
3 3
2 2
1 1
0 0
-1 -1
-2 -2
-3 -3
Demand Less Than Productivity 6/30/2008 = -0.7%
(E739) 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Source: Ned Davis Research

21
 Equipment & Software Spending vs. Business Lending Standards
Quarterly Data 9/30/1990 - 9/30/2009 (Log Scale)*

-24 15
-21
-18 14
-15 13
-12
12
-9
-6 11
-3 10
0
3 9
6 8
9 7
12
15 6
18 Equipment & Software Expenditures 5
21
Year-to-Year Change 4
24
27 12/31/2008 = -10.9% 3
30 2
33 Scale Right
36 1
( )
39 0
42 -1
45
48 -2
51 Net % of Banks Tightening -3
54 Standards for Large Business Loans -4
57 Moved Ahead Two Quarters
60 -5
63 9/30/2009 = 64.2%
-6
66 Inverted Scale Left
( ) -7
69
72 -8
75 -9
78
81 -10
84 Correlation Coefficient = 0.75 -11
34 123 412 341 234 123 412 341 23 4 12 341 23 4 12 3 41 2 341 234 1 23 412 34 123 412 341 234 123 412 341 23
(E871) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

*See important notes.

Source: Ned Davis Research

22
Global Central Banks Continued to Flood the Market with Liquidity

Central Bank Policy Rate Change Global Rate Changes

Since September 30, 2008
10 Yr Rates as of 9/30/2008
0 10 10 Yr Rates as of 12/2/2008

8.64
10 Yr Rates Change from 9/30/08 to 12/2/08
-20
8

7.02
-50

5.67
5.41
6

4.85
-100

4.45
4.36

4.24
4.02
-100 -100 -100 -100 -100 -100

(Basis Points)
(Basis Points)

3.83

3.83

3.76
3.74
3.48
4

3.16
3.05

2.71
2.68
-150
-150

1.47
1.36
2

-200
-200 0

-0.11
-0.50

-0.60
-0.82
-0.97

-0.97
-1.05

-1.12
-250

-1.15
-2

-1.62
-275
-300 -4
EMU

EMU
U.S.

U.S.
UK

Norwak

UK

Norwak
Australia

India

New Zealand

Sweden

Canada

Japan

New Zealand
Australia

India

Sweden

Canada

Japan
Source: Federal Reserve; Barclays Capital

23
But Banks are still not Lending

Source: Federal Reserve, Goldman Sachs.

24
 Flight to Quality Intensified in November
10-Year Treasuries below 3% / 2 year yields below 1%
10-Yr US Treasury Yield (%)

2-Yr US Treasury Yield (%)

Source: Barclays Capital

25
Investment Grade Corporates vs. Equity Market
Bonds more attractive than equities today
LT U.S. BBB Spreads

Source: Deutsche Bank; Bloomberg, Moody’s, NBER, Irrational Exuberance (second edition) (Robert Shiller).

S&P 500 P/E Ratio

Source: Deutsche Bank; Irrational Exuberance (second edition) (Robert Shiller), S&P.

26
 Financial Conditions Index
January 1992 – December 2008

3.0

2.0

1.0

0.0

(1.0) Bloomberg’s U.S. Financial Conditions Index

Components and Weights
Money Market Index Weight
(2.0)
Ted Spread 11.1%
Standard Deviation

1/8/2001 10/23/2002
Commerical Paper/T-Bill Spread 11.1%
(3.0) 10/22/1998 -1.28 -1.39
Libor-OIS Spread 11.1% -1.93
33.3% Credit Crisis
(4.0) Bond Market
Investment-Grade Corporate/Treasury
6.7%
Russian 2002 Credit
(5.0) Spread Dot Bomb
Financial Crisis Crunch 12/31/2008
Muni/Treasury Spread 6.7% -5.37
(6.0) Swaps/Treasury Spread 6.7%
High Yield/Treasury Spread 6.7%
Agency/Treasury Spread 6.7%
(7.0)
33.3%
Equity Market
(8.0)
S&P 500 Share Prices 16.7%
VIX Index 16.7%
(9.0) 33.3%
Total 100% 10/10/2008
(10.0) -10.18

(11.0)
Jan Nov Sep Jul May Mar Jan Nov Sep Jul May Mar Jan Nov Sep Jul May Mar Jan Nov Sep
92 92 93 94 95 96 97 97 98 99 00 01 02 02 03 04 05 06 07 07 08

Source: The Bloomberg Financial Conditions Index. The index combines yield spreads and indices from the money markets, equity markets, and bond markets into a normalized
index. The values of this index are z-scores, which represent the # of standard deviations that current financial conditions lie above/below the average from 1992 – 2008.

27
 Consensus World GDP Forecasts

13.0%
14% 2007
2008
12% 2009 (Nov Est)
2009 (Jan Est)

9.3%

9.0%
10%

8.5%

8.3%
8.1%
8.0%

7.3%
8%

6.7%
6.3%
6.2%

6.2%
5.7%

5.1%

5.1%
6%

3.5%

3.3%
3.0%

3.0%
4%

2.7%
2.6%
2.1%
2.0%

1.8%
1.1%

1.0%

1.0%
2%
0.7%

0%
-0.2%
-0.3%

-0.3%
-0.5%
-0.7%

-0.7%
-1.3%

-2%
-1.6%

-2.0%

-2.0%
-2.6%

-2.8%

-4%
U.S. Japan UK Euro area Brazil Russia India China Developed Emerging
markets markets

Commonfund Estimates:
2009E -1.8% -3.0% -3.3% 1.5% -2.0 5.0% 6.0% -2.5% 3.0%

Source: IMF, ISI – February 2009

28
What is likely to happen?

 Recession
 Sluggish consumer spending
 Continued government involvement
 New regulations and programs
 Mortgage package for homeowners
 Limited credit
 Improved liquidity, starting with high-quality issuers
 Rating agencies rethought

29
 10%
20%
30%
40%
50%

0%

-30%
-20%
-10%
Return
Annual
1974 -11.4%

1975 12.0%

* Estimated returns
1976 9.9%

1977 5.1%

1978 2.5%

1979 10.8%

1980 11.9%
Historical Performance

1981 14.6%

1982 -0.9%

1983 41.3%

1984 -2.2%

1985 25.5%
Educational Endowments

1986 26.9%

1987 13.9%

1988 1.3%

1989 14.1%

1990 9.6%

30
1991 7.2%

1992 13.1%

1993 13.3%

2.9%

Source: NACUBO Endowment Studies, Commonfund Benchmarks Study | Educational Endowment Reports
1994
1995 15.5%

1996 17.2%

1997 20.4%

1998 18.0%

1999 11.0%

2000 13.2%

2001 -3.0%

2002 -6.0%

2003 3.1%

2004 14.7%

2005 9.7%

2006 10.6%

2007 16.9%

2008* -2.7%

2009* -23.0%
 Cumulative Inflation-Adjusted Performance
70% S&P 500, 30% Barclays Capital U.S. Aggregate and 5% Spend

Real Value using CPI as the

140 Deflator

CPI
120 HEPI

Origninal Market Value Line

Cumulative Value (Real Dollars)

100

80

60

Real Value using HEPI as the

40
Deflator

20
Time Period – 42 Years

0
1968

1970

1974

1978

1982
1983

1993
1994

1996
1997

2000
2001

2003
2004
2005
2006
2007
1965
1966
1967

1969

1971
1972
1973

1975
1976
1977

1979
1980
1981

1984
1985
1986
1987
1988
1989
1990
1991
1992

1995

1998
1999

2002
Source: Ibbotson, Bloomberg, Commonfund Institute
The equity portion of the hypothetical portfolio is based on monthly returns of the S&P 500 Index (12/65-2/08), and the fixed income portion is based on monthly returns of the
Barclays Capital U.S. Aggregate Index (01/73-2/08) and the Ibbotson Associates Long Term Corporate Bond Index (12/65-12/72). HEPI data from 07/06 to 2/08 is estimated using
the Commonfund Institute method based on regression analysis. Returns for this hypothetical portfolio assume that it is rebalanced to 70/30 annually on 1/1/yy and 5% is distributed
annually on 1/1/yy.

31
 Impact on Higher Education
Endowment Facilities
GIFTS
New
Deferred State Support
Annual Investments
Capital

Giving Asset Allocation New

PPE

Campaigns
Debt Renewal
Debt
Performance
Net Assets
DEBT
POLICY
Spending
Spending POLICY
Tuition and
Fee Rates Endowment Income Interest Fixed/ Variable
State Current Use Gifts Depreciation
Support
Operations

Grants and Contracts Space and Occupancy

Financial Aid
Policies Other Income Supplies & Others
Revenue
Housing
Expense Headcount
Academic
Programs
State Support, Compensation
Tuition & Fees, and Benefits Pay Scales
Room & Board
Enrollment Plan Design
Cost Sharing

Revenues Expenses

32
Policy Issues

 Asset allocation
 Rebalancing
 Spending rate/ amount
 Spending policy
 Gifts
 Debt
 Opportunities

33
Steps To Take | Short Term

 Don’t panic: stress shortens one’s time horizon

 Don’t sell on short-term news, i.e. don’t sell low
 Develop a short term financial plan including
 Liquidity position
 Current and potential shortfalls
 Available revenue streams (tuition, endowment draw, gifts, fees, grants, etc)
 Credit facilities
 Assess your liquidity needs and borrowing capacity
 Rebalance your portfolio if and when you can (it works)
 Don’t change your asset allocation unless you have specific awareness of new risks
 Adjust your spending to ensure it supports your institutional mission and your
operations
 Create contingency plans and assess operations to identify key risks
 Communicate with all key constituents

34
Steps To Take | Long Term

 Develop a long range financial plan integral with your strategic plan
 Assess today’s revenue needs vs. the maintenance of the purchasing power of your
endowment over the long term
 Think long term to take advantage of time-frame arbitrage
 Review and revise your Investment Policy Statement
 Review specific policies: asset allocation, rebalancing, spending, debt, gifts
 Analyze your exposures and reposition your portfolio to take advantage of
opportunities when they appear
 Develop a plan to raise funds for endowment from your best donors
 Revisit your risk management process and procedures
 Analyze your governance model, specifically how you run your endowment and how
you make investment decisions

35
APPENDIX

12/09/21
 Credit Contagion Timeline
July 2007 – January 2008

August 9: The European Central

July 7: Bear Stearns
closes two hedge
funds after total
losses on subprime
bets worth more than
$20B.
Bank injects €94.8B into the money August 17: The January 18: MBIA, the largest bond
markets to shore up confidence in Fed cuts the insurer, raised $1B in capital to January 30:
the financial system. This Discount Rate, maintain its Fitch triple-A rating. FOMC cuts rates
unprecedented level of intervention the rate banks Fitch strips AMBAC, the second another 50 bps,
follows a statement from BNP can borrow from largest bond insurer, of its triple-A for an
Paribas, the French bank, that it has the Fed, by one- rating and suggests further unprecedented
decided to suspend redemptions on half percent just downgrades are possible. Four days total of 125 basis
three investment funds. 10 days after the later AMBAC reported a $3.26B loss. points in a nine
FOMC meeting. day span.

Jul-07 Aug-07 Dec-07 Jan-08

July 25: Bankers raising August 16: The Chicago January 22: FOMC cuts
$20B for the private Mercantile Exchange, the the Federal Funds rate by
equity buyout of world’s largest derivatives 75bps in an emergency
Chrysler Group are exchange, raises margin action between scheduled
forced to postpone the requirements for 24 of meetings. This was the
sale of $12B in loans for 400+ contracts, including largest rate cut since
the car group. those based on 1982.
currencies, interest rates
and stock indices.

Source: Financial Times, Bloomberg

37
 Credit Contagion Timeline
February – September 2008

Feb 7: The Bank of April 8: IMF warns the Sept 29: TARP
England cuts interest potential losses from the readjusted.
rates by a quarter of one credit crunch could reach Citigroup makes an offer
percent to 5.25% $1 trillion and may even July 13: IndyMac fails. for Wachovia.
be higher.

March 7: Federal May 22: UBS launches a

Reserve makes $200 Sept 5: U.S.
$15.5bn rights issue to unemployment rises to
billion of funds available cover some of the $37bn
to banks and other 6.1%.
of losses linked to U.S.
institutions to try and mortgage debt.
improve liquidity in the
markets.

Feb-08 Mar-08 Apr-08 May-08 June-08 Jul-08 Aug-08 Sept-08

Feb 17: British

government announces April 10: The Bank of
England cuts interest rate June 25: Barclays Sept 10: Lehman
that struggling Northern announces plans to raise Brothers posts a loss of
Rock is to be nationalized by a quarter of one
percent to 5.0% £4.5bn in a share issue to $3.9bn
for a temporary period bolster its balance sheet. Sept 15: Lehman files for
Chapter 11
March 17: Bear Stearns
is acquired by rival July 14: Financial
JPMorgan Chase for authorities step in to
$240m in deal backed by assist Frannie Mae and
$30b of central bank Freddie Mac, owners and
loans. guarantors of $5 trillion
worth of home loans.

Source: Commonfund, BBC Special Report – Global Credit Crunch

38
 Credit Contagion Timeline
October – December 2008

October 3: President Bush signs October 21: The US Federal

TARP into law. Reserve announces it will spend
Wells Fargo makes a higher offer $540 billion to purchase short-term
for Wachovia, taking it from debt from money market mutual December 29: The
Citigroup funds. December 5: Oil falls Treasury provides $6
below $40 per barrel billion rescue to GMAC

November 25: The US Federal Reserve

pledges $800 billion more to help revive December 16: The
October 11: The Dow caps its the financial system. $600 billion will be Federal Open Market
worst week ever with its highest used to buy mortgage bonds issued or Committee decided to
volatility day ever recorded in its guaranteed by Fannie Mae, Freddie establish a target range
112 year history. Over the last Mac, and Ginnie Mae, and the Federal for the federal funds rate
eight trading days, the DJIA has Home Loan Banks. of 0 to 1/4 percent
dropped 22%

Oct-08 Nov-08 Dec-08

October 8: Central banks in

US, England, China, Canada, December 1: the National
Sweden, Switzerland and the Bureau of Economic
European Central Bank cut Research officially
rates in a coordinated effort November 12: Treasury
declared that the U.S. December 19: US
to aid world economy. Secretary Paulson
economy had entered announces $17.4 billion
abandons plan to buy
recession in December, rescue package for US
toxic assets under the
2007 auto makers
$700 billion TARP.
October 14: The US taps into the Paulson said the
$700 billion available from the remaining $410 billion in
Emergency Economic the fund would be better
Stabilization Act and announces spent on recapitalizing December 12: Bernard
the injection of $250 billion of financial companies Madoff arrested in $50
public money into the US banking billion Ponzi scheme
system.

Source: Commonfund, BBC Special Report – Global Credit Crunch

39
Biography
William F. Jarvis, Managing Director, Commonfund Institute, is responsible for the Institute’s research, written analysis and client
publications. A financial services executive and attorney, Bill has worked with J.P. Morgan, where he spent 13 years as an investment banker
in New York and Tokyo; Greenwich Associates, where he advised leading investment management firms and instituted the firm’s first Japanese
research program; and Davis Polk & Wardwell, where he provided legal advice to global banks and securities firms. Prior to joining
Commonfund in 2006, Bill served as Chief Operating Officer of a privately-held hedge fund manager based in New York City. Bill holds a B.A.
in English Literature from Yale University, a J.D. from the Northwestern University School of Law, and an M.B.A. from the J.L. Kellogg Graduate
School of Management. 

40
Important Notes
Investment Performance
Unless otherwise noted, any investment performance of funds maintained by Commonfund or its affiliates (“Commonfund Group Funds”)
included in this presentation reflects net total returns. Returns for periods of one year or more are annualized.
It is possible that investors may lose money on investments in any investments in Commonfund Group Funds, or in any investments in stocks,
bonds, or other instruments to which this presentation may relate, directly or indirectly. Past performance is not necessarily a guide to future
performance. Income from investments may fluctuate.

Market Commentary
Market and investment views contained in this presentation, or other market or investment commentary included in the Commonfund Forum
program, is provided for the private use of Commonfund’s investors only. Commonfund is not soliciting any action based upon it, or making any
specific recommendation to any of its investors. While such information is based on sources that we believe to be reliable, we do not guarantee
its accuracy or completeness. Any opinions expressed are our current opinions as of the date appearing on the material only. Commonfund
disclaims any responsibility to update such information, opinions, or commentary. Commonfund does not accept any liability for any loss arising
from use of the commentary contained in this presentation or communicated during the Commonfund Forum. No part of this material may be
redistributed in any form without Commonfund’s prior written consent.
Market and investment views of third parties presented in this presentation or during the Commonfund Forum do not necessarily reflect the
views of Commonfund and Commonfund disclaims any responsibility to present its views on the subjects covered in statements by third parties.

No Offering
This presentation is not an offer to sell or a solicitation of an offer to buy securities. The Commonfund Group Funds are offered only by means
of disclosure documents, prospectuses or similar materials made available to investors for consideration at the time of investment. Prospective
investors are encouraged to review these materials with care prior to investing or sending money. Commonfund Group Funds offered by
means of private placement will be offered only to qualified and eligible investors.
All interests in Commonfund Group Funds are offered through Commonfund Securities, Inc., a member of FINRA.

41
Market Outlook Disclaimer
Statements concerning Commonfund Group’s views of possible future outcomes in any investment asset class or market, or of possible future
economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any
Commonfund Group fund. Such statements are also not intended as recommendations by any Commonfund Group entity or employee to the
recipient of the presentation. It is Commonfund Group’s policy that investment recommendations to investors must be based on the investment
objectives and risk tolerances of each individual investor. All market outlook and similar statements are based upon information reasonably
available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be
accurate by Commonfund Group. Commonfund Group disclaims any responsibility to provide the recipient of this presentation with updated or
corrected information.

42
Use of this Presentation
This presentation is copyrighted by Commonfund; all rights reserved. While you may copy it for your personal use, you are not permitted to
publish, transmit, or otherwise reproduce this presentation, in whole or in part, in any format to any third party without the express written
consent of Commonfund. In addition, you are not permitted to alter, obscure, or remove any copyright, trademark or any other notices that are
provided to you in connection with this presentation.

43