Update on YU’s Finances
Earlier this, year, YU released its financial statements from fiscal year 2016. The following article highlights a few issues that are raised in the financial statements, and a few points where 2016 differed from 2015, but is by no means meant to serve as a comprehensive analysis of the statements.
It should come as no secret to the reader that YU unfortunately was involved in Bernie Madoff’s ponzi scheme, and lost money as a result. However, most people assume that the university lost money and that was that, not realizing that there was actually more to this unfortunate financial situation. The financial statements give a lot more color to the specifics of the situation with Madoff, and what exactly has transpired since the initial news came out. In terms of recovering money that was lost, in August 2014, YU received a settlement payment from the New York State Attorney General as compensation for having lost money with Madoff. Additionally, YU has filed a claim with the Madoff Victims Fund of the U.S. Attorney General, but the financial statements caution that there can be “no assurance that the University will receive any recoveries from that fund.” Interestingly, the trustee who was appointed to handle matters pertaining to the Madoff scandal sued YU, seeking to recover approximately $1,000,000 that Madoff contributed to the University across a six-year period prior to 2008. “During fiscal 2014, the University and the Madoff Trustee resolved the suit by settlement without trial, under confidential terms. The negotiated settlement amount was substantially less than the initial claim, and is not deemed material by the University,” the statement says.
Another older piece of news that those in the YU community certainly heard about a few years back was the abuse lawsuit brought against YU for the actions of former MTA teachers. According to the financial statements, “The litigation alleged abuse during the 1970s and 1980s by former High Schools employees and sought damages of over $680 million.” When this claim was dismissed, the plaintiffs appealed but subsequently lost their appeal before the Second Circuit Court of Appeals, and tried a few other avenues of appeals and litigation. In January 2014, YU (and its high schools) was granted a motion to dismiss the case based on the fact that the statute of limitations had run, along with other reasons. “Following the end of the fiscal year, the University was advised by counsel that the Plaintiffs' counsel is not pursuing any further appeals or proceedings.”
In terms of YU’s operations, the financial statements caution that the school suffered significant operating losses in the past two years. In fiscal year 2015 that number was $84,560,000, and in fiscal year 2016 it was $52,449,000, a 38% reduction from the previous year. According to the financial statements, the reasons for the recurring operating deficits include “reduced research grants funding, investments in faculty to enhance undergraduate education and medical research, and investments in updated technologies.” The school listed five ways that it plans to address these operating deficits. The first is the completed agreement to transfer financial and operational control of Einstein to a separate entity. Second is a review of “real estate holdings, including developing and implementing a strategy for the monetization of selected assets, in conjunction with the proposed strategic plan for the University.” Third is implementing other initiatives to reduce costs, specifically costs pertaining to personnel. Fourth is to develop “new academic offerings and alternative delivery models to ensure productivity and continued relevance in the delivery of academic programs.” Lastly, the university intends on “reviewing administrative services to maximize efficiencies and reduce expenses.”
YU’s endowment, and its unfortunate reduction over the last few years, has been another hot topic of conversation. The following is a brief look at how YU currently allocates its endowment investments, and how some of the numbers have changed from fiscal 2015 to 2016. Year over year comparisons between various line items in the financial statements is rendered difficult by the fact that YU’s accountants only made a single deduction for Einstein after adding together all 2015 line items, and didn’t deduct line by line.
The school’s total investment amount, adjusting for everything related to the Einstein deal, decreased from $528,436,000 in 2015 to $461,261,000 in 2016. About half the invested money, including Einstein’s pools of money, are invested in long-only equities, long-short equities, and in a category termed “multi-strategy/event-driven” which is an investment strategy that seeks to take advantage of pricing inefficiencies that may occur at the time of an event such as an earnings call, bankruptcy, merger, acquisition, or spinoff. Among the other areas that YU has invested in are bonds, including U.S. Government bonds, mutual funds consisting of bonds, and State Israel bonds; equities including corporate stocks, mutual funds consisting of equities, private equity, venture capital; and real assets, which means YU has some level of ownership over tangible assets like rail cars, ships, aircraft, forestry or traded commodities; and real estate.
In terms of major differences in how YU invested in 2016 versus 2015, they kept far fewer assets as cash than they did in 2015. Cash includes cash on hand, other liquid investments that mature in less than three months, and investments in money market funds. In other words, investments are less easily accessible now than they used to be, and are invested in longer-term funds and investments. Also, the investment category “investment receivables” decreased significantly from 2015 to 2016, from $109,584,000 in 2015 to $8,228,000 in 2016.
Of the $461,261,000 in YU’s endowment as of the end of fiscal 2016, the vast majority of the money ($372,647,000) was permanently restricted per the donors’ specifications. According to the financial documents, permanently restricted is defined as “net assets subject to donor-imposed restrictions stipulating that the asset be maintained permanently by the University.” However, the donors of these assets generally permit YU to use the interest earned on the investments as YU desires, which gives YU much more leeway.
Lastly, in fiscal 2016, the Board of Trustees authorized the sale of two properties. One was the Alabama Residence a student housing building on the Brookdale campus near Cardozo’s campus, for approximately $58,000,000 to Collegium Capital, a real estate firm specializing in student housing, as previously reported by The Commentator. The second building was located on the Beren Campus and was sold for approximately $9,000,000. The total approximate gains related to the sale of these two properties were $60,000,000.
Obviously, the picture that was painted by these financial statements--and by extension in this article, is a little less than rosy. That being said, the school is taking concrete steps such as selling buildings that will immediately help the school generate money. In addition, reducing the deficit by over 35% is a step in the right direction. As opposed to just reallocating funds from one investment vehicle to another, or choosing riskier investments at the expense of safer ones, these actions seem like a prudent way to turn things around, and will hopefully usher in an lengthy era of financial security and broader success for the school.