Stocks cost Foundation $80 million

Sliding stock markets struck the IU Foundation hard in the 2001-2002 fiscal year, wiping out millions of dollars from its long-term fund. But foundation officials say the loss will have no direct impact on students.\nThe fund, called the Pooled Long-Term Fund, is a diversified portfolio of stocks and bonds worth nearly $1 billion.\nThe University and its departments channel various portions of the donations they receive into the long-term fund according to donor preferences.\nBetween July 2001 and June 2002, the value of the Pooled Long-Term Fund declined $80.7 million, or 8 percent, to $928.1 million from $1.008 billion, according to the data recently published by the Foundation. Payments such as the returns paid to investors contributed to the decline, but the main catalyst was the weakening stock market, said Gary Stratten, chief investment officer for the Foundation.\nThe losses in the Pooled Fund won't cause scholarships or fellowships to decrease, said Barbara Coffman, director of communications at the Foundation. The Foundation has been raising more money than before, including money designated for financial aid.\n"It's not as though there were a pool of scholarship money and that it were spread equally over students," Coffman said. \nThe long-term fund is invested in two different funds run by the Foundation: 70 percent in an equity fund consisting of stocks and 30 percent in a fixed-income fund composed of bonds.\n"On the stock side, as the tide receded, just about everything went down," Stratten said. \nThe Pooled Equity Fund's value fell 12.3 percent in the fiscal year that ended in June, dragging the long-term fund along the way, according to the Foundation's report. The figure excludes a 1.6 percent annual management fee that the Foundation takes from the equity fund's market value. \n"The market has been really, really challenging," Stratten said. "But our portfolio has held up fairly well."\nWith its portfolio filled with various sizes of U.S. and foreign stocks, the equity fund outdid the Standard & Poor's 500-stock index, which fell 18 percent in the same one-year period. The index, commonly called the S&P 500, tracks the average performance of 500 widely held common stocks.\n"One must look at (the Pooled Fund's) losses in the context of the entire market," IU Foundation President Curtis Simic said. "During the two fiscal years ending June 1, 2002, the S&P 500 lost 31 percent. The IUF Pooled Long-Term Fund lost 12 percent for those two years. That means our diversification strategy worked."\nThe fixed-income fund grew in value and helped soften the impact of the stock losses. The Pooled Fixed Income Fund, a collection of U.S. and international bonds, rose 5.1 percent in the fiscal year that ended in June. The figure doesn't account for a 1 percent annual management fee charged by the Foundation.\nThe Pooled Long-Term Fund's million-dollar decline will have no immediate impact on students, Stratten said. The University and its departments are getting steady streams of returns, thanks to the fund's structure and distribution method.\nThe Long-Term Fund works like a mutual fund, Stratten said. The Foundation issues the fund's shares called "units" in exchange for investments made by the University and its departments. Unit holders receive annual distribution.\nIf a department receives a $1 million gift and the donor tells it to invest the money in the Long-Term Fund, the department will put the $1 million in the Fund, and will get 1 million units from the Foundation if units are $1 apiece.\nUnits' values fluctuate with the Fund's asset value, Stratten said. The Foundation uses a "12-quarter rolling average" distribution method designed to cushion the impact of the price fluctuation of unit-holders.\n"It is a smoothing technique and buffers the University, in this case, from the vagaries of market performance," said James Perin, chief financial officer of the Foundation.\nIn June, actual annual distribution for the Pooled Long-Term Fund stood at $0.0564 per unit, about the same as early 2001, according to the Foundation's documents. The rate is 30 percent higher than $0.0432 in early 1998.\nIn 2001, the foundation raised a record $232.7 million in private contributions, according to the organization's Web site. Because of the recent economic downturns, Foundation officials predict that the currently audited 2002 result won't beat that figure, Coffman said. But they expect it to mark the third best year, following behind $109 million raised in 2000.