Administration takes risks with increase in private investments

Ryan Loew

Kent State’s money is at the beginning of what some consider to be a trend.

Last week, the Board of Trustees acted to change the university’s investment policy, shifting some investments to more risky assets such as stocks, real estate, private equity and hedge funds — from 15 percent of the portfolio to 40 percent.

And according to some university administrators, privatizing investments due to lacking state support is a national trend.

David Creamer, vice president for administration, said because support from the state of Ohio has fallen behind, the university is turning to more volatile investments to gain money.

“Because this change is going on nationally, each state is looking at long-term solutions,” Creamer said. “It’s interesting because we’re at the starting point of this evolution.”

With the new policy, Creamer said, he hopes the university’s budget will grow from $6.5 million to $15 million “over some horizon of several years.”

Such alternative assets are risky compared to traditionally safe investments like U.S. stocks and bonds, Creamer said. The returns from such alternative sources, however, are higher.

The state cap for such investments is 75 percent of a university’s portfolio.

“It’s a long-term strategy,” Creamer said. “But the benefits that come in will lower your tuition. We can produce other kinds of income that can offset the tuition price.

“Whenever we make these kinds of changes our objective is to increase the quality of what we’re able to do or lower the cost.”

Almost every state has reduced its support for higher education, and such reductions are not temporary. With more universities privatizing, they are beginning to look like private schools, if not private businesses, Creamer said. Public universities in states such as Colorado and Virginia are aggressively privatizing investments.

“In some instances, the amount of public dollars — state support — may be below 10 percent,” Creamer said, “which makes (state schools) look like some private colleges.”

Students in Ohio are paying about 70 percent of college fees, with the state paying the remaining 30 percent.

“The reality is the cost of attending a public institution, even with state reduction, is still a bargain,” Creamer said. “They’re still very attractive to students coming out of high school.”

Jim Nichols, treasurer of Ohio State University, said the trend of institutions increasing private investments is not unique to public universities, but it is a key method among universities to gain money and stabilize investment risk.

“It has nothing to do with state funds,” he said. “What state funds we get, we get. You invest your endowment to diversify your portfolio. It helps to bring in more revenue and make (investments) less volatile.”

Diversifying the university’s portfolio is a key element of Kent State’s new policy, Creamer said.

Certain asset classes perform better than others, he said, and the ones that bring in more money compensate for ones that don’t.

But not all agree on such investment policies.

John Habat, vice president for administration of Youngstown State University, said he doesn’t see private investments as a trend for state schools and expressed concern over the concept.

“Our guidelines allow us to invest up to 5 percent in equity,” he said. “I can’t imagine a situation where we would get involved in risky investments. The more volatile the investment is, the more caution I would exercise.”

Contact administration reporter Ryan Loew at [email protected].