2008 Woodie Awards
Video related to this article is available below.Issue date: 2/20/08 Section: News
Finances fairly safe from market shocks
Endowment, capital campaign will likely not be affected by a recession, officials say
Priyanka Dev
If a recession is on the horizon for the economy, Penn officials and finance experts say the University should not be too worried.
In the last quarter of 2007, the U.S. economy saw a staggeringly low growth rate of 0.6 percent. While growth was not negative, as it would be during a recession, it might be a signal that the nation is headed there in the coming years.
But Penn's finances generally seem to be safe from market shocks, University administrators said.
A 2001 study conducted by the Treasurer's Office, which compared the country's economic growth during past recessions with Penn's own financial health, showed that the University is only moderately sensitive to recessionary swings.
In layman's terms, this means some financial areas may suffer, while others avoid drops or even improve in the face of hard times affecting the entire nation.
Executive Vice President Craig Carnaroli wrote in an e-mail that tuition revenue is less sensitive to dips, while revenues at campus retail outlets like restaurants and hotels are more likely to waver.
"Higher-education theory holds that demand for quality education is generally recession-proof," Carnaroli wrote. "People either have the time or are more willing to make the investment in education to provide them greater future economic opportunity."
Though enrollment numbers may not suffer, other University finance areas - like the endowment - might.
"I think the economy will play some factor in [endowment growth]," Vice President of Development and Alumni Relations John Zeller said. "In any given cycle over a seven-year period, there will always be peaks and valleys."
Carnaroli agreed that equity returns will drop in the short run but said smart choices made by University officials in the past may help avoid startling changes.
"We have been light on U.S. [investments] and, therefore, have avoided the serious downdraft in that sector," he wrote.
In the last quarter of 2007, the U.S. economy saw a staggeringly low growth rate of 0.6 percent. While growth was not negative, as it would be during a recession, it might be a signal that the nation is headed there in the coming years.
But Penn's finances generally seem to be safe from market shocks, University administrators said.
A 2001 study conducted by the Treasurer's Office, which compared the country's economic growth during past recessions with Penn's own financial health, showed that the University is only moderately sensitive to recessionary swings.
In layman's terms, this means some financial areas may suffer, while others avoid drops or even improve in the face of hard times affecting the entire nation.
Executive Vice President Craig Carnaroli wrote in an e-mail that tuition revenue is less sensitive to dips, while revenues at campus retail outlets like restaurants and hotels are more likely to waver.
"Higher-education theory holds that demand for quality education is generally recession-proof," Carnaroli wrote. "People either have the time or are more willing to make the investment in education to provide them greater future economic opportunity."
Though enrollment numbers may not suffer, other University finance areas - like the endowment - might.
"I think the economy will play some factor in [endowment growth]," Vice President of Development and Alumni Relations John Zeller said. "In any given cycle over a seven-year period, there will always be peaks and valleys."
Carnaroli agreed that equity returns will drop in the short run but said smart choices made by University officials in the past may help avoid startling changes.
"We have been light on U.S. [investments] and, therefore, have avoided the serious downdraft in that sector," he wrote.
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