President Richard C. Levin Statement to Yale Community on the Financial Crisis

President Richard C. Levin
October 22, 2008

It is impossible to ignore the dramatic headlines and news reports surrounding the worldwide financial crisis. During times like these, it is only natural to be concerned about the effect the current economic state might have on the University and, in turn, on your personal circumstances. We would like to assure the University community that Yale continues to maintain a strong financial position.

Thanks to the generosity of our donors and the excellent stewardship of our Investments Office, we are more than capable of successfully navigating through these turbulent financial waters. We not only have a large endowment, but also substantial reserves to supplement difficult periods.

Downturns in the normal economic cycle are expected, and the University takes a conservative stance when it comes to spending in order to maintain a stable environment throughout these cycles. We have a very prudent spending rule that we use to determine distributions from the endowment to fund programmatic and operational expenses. This spending rule calculation smoothes the impact of any one year’s endowment results over the next several years. The effect of this is to have extraordinary endowment gains flow more slowly into the operating budget in good times and, importantly, in times like these, also buffer the operating budget from any dramatic short-term losses in the endowment.

For some time now, we have been anticipating the possibility of a slowdown in our financial returns and have structured future operating budgets with that in mind. Our plans include significant investments in the continued expansion and renovation of the campus infrastructure and the growth and enhancement of key programs and capabilities. Should the economic conditions we are experiencing today persist, we have the flexibility to slow down some of these investments, and we would do so before curtailing ongoing operations. Understandably, managers should forgo any unnecessary spending through the balance of this fiscal year and will exercise caution in submitting budget proposals for next year.

Many of you are undoubtedly concerned about what the current state of the economy means for your retirement portfolios. For more information about how Yale’s financial service providers have been affected and what they are doing to mitigate the influence of the current market, we encourage you to review TIAA-CREF’s statement or Vanguard’s statement. We have arranged to have TIAA-CREF and Vanguard come to campus to host town hall style meetings to inform interested staff and answer questions. The times and places for these sessions are as follows:

October 23 – TIAA-CREF – The Anlyan Center, 300 Cedar Street – 9:00-10:00 am
October 27 – Vanguard – The Anlyan Center – 1:00-2:00 pm
October 31 – TIAA-CREF – Luce Hall, 34 Hillhouse Avenue – 9:00-10:00 am
October 31 – Vanguard – Luce Hall – 11:00-12:00 pm

In addition, the Yale College Council and the Student Investment Group, with my support, have organized a panel, Understanding the Financial Crisis and Implications for the 2008 Presidential Election (video Available), which is set for tomorrow, Wednesday, October 22nd from 8:00-9:30 pm in Sudler Hall (100 Wall Street). The panelists are Professors John Geanakoplos, Jonathan Macey, William Nordhaus and Robert Shiller and will be moderated by Professor Judith Chevalier.

Yale will continue to be an engine for economic growth in New Haven. The construction of two new residential colleges, expansion of the School of Management, and the new scientific research made possible by the West Campus not only help the University fulfill its mission, they also create more jobs and opportunity for New Haven and the region. The local economy is anchored by Yale, five other institutions of higher education, and two major hospitals, which together employ nearly 30,000 people and make our economy less susceptible to the worst downturns in a recession and better poised to prosper when the national economy recovers.

There is no doubt that we are in the midst of an economic dislocation and we will have to be diligent in monitoring the situation. However, we are confident that both the University and its faculty and staff will continue to enjoy relative financial stability in the short-term, and we are doing everything in our power to ensure our long-term financial strength as well.

Related Video:
Understanding the Financial Crisis and Implications for the 2008 Presidential Election