Smart thinking and a ‘hunch’ help UST avoid budget problem in national financial crisis
St. Thomas has avoided a significant liquidity problem tied to the nation’s financial crisis, thanks to the smart thinking and "a hunch" acted on by its chief investment officer and assistant treasurer.
More than 900 colleges and universities invest funds in the Wachovia Bank’s Commonfund, allowing them quick access to money that is used to pay salaries, make debt payments and handle other operating expenses. Wachovia Bank, which maintains the fund, chose to close it on Monday and froze access to most of the money.
St. Thomas has had money in Commonfund since 1971 but decided last month to instead deposit $40 million in recent tuition, room and board payments into U.S. Treasury bills held by Northern Trust in Chicago. Michael Sullivan, chief investment officer, made the decision based on a recommendation by assistant treasurer Carol Peterfeso and financial analyst Ricia Lansing.
Sullivan told the St. Paul Pioneer Press on Tuesday that he played "a hunch … an absolute hunch" in dodging what the newspaper called "a $40 million bullet." The credit crisis has become so pervasive, he said, that it’s difficult to determine where the university’s money will be safe.
"We need a certain amount of money to be ‘liquid’ so we can pay our bills over the next several months," Sullivan said. "We monitor money market funds, like Commonfund, on a daily basis, and given the turmoil in the market we decided to put the $40 million in the safest place: Treasury bills."
Mark Vangsgard, vice president for business affairs and chief financial officer, praised Sullivan, Peterfeso and Lansing for their thoughtful leadership and action.
"Mike and Carol have worked together in overseeing the university’s investments for 20 years," Vangsgard said. "Their experience and their knowledge of how volatile the markets are today were invaluable in making the decision to put the money in Treasury bills."
Vangsgard and Sullivan pointed out that a majority of St. Thomas’ $400 million in assets is invested in a diversified portfolio that regularly outperforms indexes such as the Standard & Poors 500. The value of St. Thomas’ portfolio has dropped because of the recent downturn in the market. The portfolio value is expected to increase over the long term.
The Commonfund crisis began Monday when Connecticut-based Wachovia announced that it was resigning as trustee of Commonfund and would allow plan participants to withdraw only 10 percent of the value of securities that had reached maturity. That percentage grew to 26 percent on Tuesday and 34 percent Wednesday, and is expected to reach 57 percent by the end of this year.
A Commonfund executive told the Chronicle of Higher Education on Tuesday that the organization had no control over Wachovia’s decision. "Obviously, it couldn’t come at a worse time, at the end of the month and the end of the quarter," he said. "We can understand why people are upset."
David Laird, president of the Minnesota Private College Council, has urged the state’s congressional delegation to work quickly in adopting "a reasonable recovery plan" that will ease the financial pressures on colleges and universities that depend on Commonfund assets to pay their bills.