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Tufts withdraws from Commonfund as other schools lose access to investments

Published: Monday, November 3, 2008

Updated: Monday, November 3, 2008 09:11

Bank

MCT

Wachovia has become a symbol of the unexpected consequences of the economic slowdown.


In early October, University President Lawrence Bacow sent out a mass e-mail assuring students and faculty that Tufts is in good financial standing and will not greatly suffer at the hands of the volatile economy. It was largely due to one critical decision on behalf of Tufts' financial department, however, that this statement could be made with confidence.

In August, Tufts withdrew its funds from the Commonfund Short Term Fund, a non-profit investment-managing fund owned by Wachovia Bank. At the time, Tufts had approximately $130 million invested in the fund, which held a total of $9.3 billion from a collection of over 900 colleges and universities. Tufts' financial department, at the suggestion of Associate Treasurer of Finance Darleen Karp, decided to withdraw the money as fears about the state of the economy and the fund's finances mounted.

Karp's prediction certainly paid off. Wachovia notified participating institutions in late September that it would be freezing the fund and giving investors access to only about a third of money held there -- a move that has the potential to negatively impact many investors.

"In September, because of liquidity issues with the underlying investments, the Short Term Fund was frozen and no longer allowed investors to withdraw funds at will," Karp said in an e-mail to the Daily. "It is our understanding that as the underlying investments become liquid, the Commonfund is making those funds available to investors. We believe that the Commonfund is still holding close to 50 percent of the funds of schools that were invested with them when the Short Term Fund froze in September."

The fund is used by many universities and institutions of higher education as a means to manage the finances used to support day-to-day operations.

"Tufts had used the Commonfund Short Term Fund as an investment vehicle for working capital funds for many years," she said. "Tufts deposited receipts from tuition, grants [and] certain gifts and withdrew funds as they were needed to pay salaries and other bills. Balances in the fund received an investment return. The fund had daily liquidity, much like a money market fund. Before Tufts withdrew from the Short Term Fund, we had more than $100 million invested there."

Should the Short Term Fund be unable to liquify a greater percentage of funds in the coming months, some schools will be incapable of reaching large portions of money: Pace University has $48 million, or 64 percent of its working capital invested in the fund, while the University of Michigan reports that it has at least $25 million invested.

Luckily for Jumbos, Karp and her colleagues foresaw that the fund was doomed and withdrew the money just before its collapse. "We were concerned about the liquidity of the underlying investments," Karp said.

Students across the board have commended the treasury department's foresight in withdrawing Tufts' investments from the Commonfund; however, in wake of last year's embezzlement scandal, the state of Tufts' investments is a touchy subject among many. For many students, it is difficult to reconcile visible problems on campus with the mention of enormous sums of money like those withdrawn from the Commonfund.

Senior Alissa Brandon feels that students should be more informed about the state of Tufts' finances and what is being done with the money that is invested.

"I think students should be included more," Brandon said. "This year is the first time I've heard about students being consulted -- with the embezzlement money -- and I think there should be more forums."

Brandon also added that there are many small things that need to be fixed, and commented that if the university has over $100 million invested, it should be able to take care of some of the school's lesser problems.

"I understand that running a big university is a pretty huge operation," she said. "[But] sometimes I think about [the] fact that there's a broken chair ... [and] the lounge couches are dilapidated ... and I wonder why I'm paying $40,000 a year. But for the most part, I trust Tufts."

"We pay [so much] and sometimes it seems like we don't have some of the things that we should have," junior Domenica Nino said. "I'm always wondering where all the money is going."

Senior and quantitative economics major Ben Picillo feels that students often do not see the long-term benefits of Tufts' investments because their experience at Tufts is limited to a four-year window.

"I think that the problem with Tufts is that, [with] their financial goals, students don't really see that," he said. "Tufts wants to update buildings and attract world-renowned faculty and students don't necessarily see these goals as improving their own life at the school."

Picillo added that although students should be involved in the decision making process to a certain extent, the decisions should ultimately be made by the university.

"I think that the problem with consulting students is that students are only here for four years, and financial endeavors can sometimes be more long term than that," he said. "Students may be trying to push for things that will affect them in four years not the next classes that are coming in."

Nino agreed that students may not always be the best decision makers. "It should be more out in the open ... It's our money and we should know where it's going, but I don't think everyone is going to care ... and if everyone is qualified to decide [how Tufts' money should be spent]," she said.

The termination of the Commonfund also raises certain questions about the safety of investing so much money in one place; still, students seem to trust the decisions that Tufts has made.

"I'd be nervous about that sum of money all in one place," Brandon said. "But I also understand that the more money you have invested the more dividends you have on it."

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