A message from the Chancellor about Vanderbilt and the economy
Posted Thursday, November 13, 2008.
To the Vanderbilt Community:
Over my 22 years of service, I have seen Vanderbilt, with ever-increasing pace, assume a leadership role among the greatest universities in the world. With our continued ascent, we are privileged now to set the highest of standards for those universities that are deeply committed to educating the brightest young people in every field of endeavor, making fundamental discoveries in every important area of inquiry, and through our breakthrough research being able to provide patient care that cures and heals where previously no such hope existed.
There are many markers of our distinction and difference. Just this past year, we set records in total revenue; national rank for research dollars awarded (#20); undergraduate admissions (increased approximately 31 percent); number of Ph.D. degrees awarded (252); philanthropy; health care in the marketplace; and our endowment remained in positive territory while the S&P fell 13.1 percent. This set of accomplishments for fiscal year 2008 built on previous years of great success. As we approach our Thanksgiving break in this fiscal and academic year 2008-09, I feel privileged to serve as your Chancellor. Our year began, as our mission demands, with great ambitions, welcoming our best entering class, more than 100 new faculty colleagues, and more than 1,150 new members of our staff. Whether in our new Commons, which was recently featured in TIME magazine; in the opening of MRBIV; or in our burning desire to reach a bowl game in football, we have much of which to be proud and thankful for.
Many factors have contributed to our success. Fundamentally, however, I have no doubt that our ultimate success and strength rest in the members of our community. Our talented and dedicated staff of 19,000; our world class faculty of 3,500; and our 11,000+ students not only define our mission; each of you individually and collectively in our unique community embody our mission. You also secure our future and our strength by your great work, bold ambition and commitment to excellence.
Our meaningful and noble work defines our university and brings meaning to each of us. Yet it is difficult not to be distracted by and concerned over the tumult in our nation’s and the world’s financial markets, and to be genuinely concerned over the health of our local, national and global economy. Indeed, as I am privileged to walk the campus and meet and learn from many of you this semester, I have been asked on occasion about these days of volatile markets and the broader economy. In each of these conversations I have listened, but have been quick to reassure that Vanderbilt is strong and sound and that our progress will continue. As I reflected on these conversations, I thought, “I wish I could talk to each person on our campus to let them know we are strong and we are great. We will be fine, and our future is bright.” Knowing I could not reach out to each of you, I decided to send you this message.
We are a great university, and we are very strong and sound financially. All of the indicators of our strength for the short-term and long-term remain the benchmark for many. Indeed, leading analysts in the financial markets have noted in their public reports that among our nation’s great universities, Vanderbilt has set the standard for managing with clarity and speed the potential impact of the unforeseen gyrations in the stock and credit markets. You should know that our senior leadership team of vice chancellors, deans, and others, is strong, and that our financial team is, and has always been, prudent, expert and proactive. Our exponential progress has been based on sound and conservative budgeting and financial planning. While we cannot predict the future, I want you to be assured that my senior management team and I have been, and will continue to be, working hard and diligently monitoring the situation and all developments, with our goal of serving you and maintaining our great progress. Of achieving this, I am confident.
Many of us who over the years have been saving for retirement have seen significant decline in the stock market. That, no doubt, has led some to ask me about the performance of our endowment, and that of other great universities. As I noted earlier, despite the turbulent markets of fiscal year 2008, we earned a positive 2.1 percent return, outpacing the negative returns on broad domestic markets and outperforming many of our peers. Of course, nobody can predict what the market will do over the next day or week, and since our fiscal year end of June 30, the markets have declined significantly. I do want to remind you that Vanderbilt, like other universities, prudently and conservatively spends and calculates endowment payout. To reduce the impact of sharp declines and prevent overspending during steep increases, we use a three-year smoothing average. In other words, we calculate our endowment payout based on our return at the close of this calendar year 2008, averaged with the returns for calendar years 2006 and 2007. It is worth noting that the returns for those two years were 14.6 percent and 15.2 percent. Hence, we know that as we record our return for calendar year 2008, we will add that result to the already known total returns for the prior two years of 29.8 percent. This total will then be divided by three.
I know for many, this data is perhaps technical, but I write this message to assure you that Vanderbilt does prepare for the uncertain and has in place the processes and resources that allow it to thrive and be aggressively opportunistic through times of great prosperity, as well as through economic challenges. Along these lines, I would also note that while the endowment performance is important, our revenues are drawn from many diverse sources including health care, philanthropy, tuition, and federal research. There are challenges in these areas to be sure, but we are very well-positioned to manage and progress through these challenges. My management team and I are working to analyze the sensitivity of these diverse revenue streams in these times of unprecedented stress. No doubt, the stress on job markets could affect our health care mission, alerting us to the need to be prepared to help those who do not have insurance. While this certainly requires financial planning and analysis, we should all be reminded that it is our reputation for excellence and compassion that defines Vanderbilt’s role here.
In this, and at all times, our priorities for Vanderbilt will not change. Our first priority must continue to be investing in our people. Thus, for example, we will go forward with our recently announced plans to expand our financial aid package by replacing all need-based student loans with Vanderbilt grant and scholarship assistance while continuing to fully meet the demonstrated need of our undergraduates. We have been raising and investing funds designated for this initiative since we began our Shape the Future campaign, and it is affordable and phased in over a five-year period. We should all feel proud that in what will be a challenging economy for many, Vanderbilt is able to step forward with a helping hand to deserving students and families with financial need. In short, our enhanced aid program is a modest investment that will yield enormous returns in assuring that qualified students who want to attend Vanderbilt will now be able to do so, regardless of their financial situation. I am proud that Vanderbilt, amid all the economic turmoil, is a shining light and a leader in doing what is right.
Our Shape the Future capital campaign will continue. We have raised more than $1.6 billion towards our $1.75 billion goal. In times of a weak market and a weak economy, we need to work harder and continue to get our message out to those who can make a difference. Fortunately, our philanthropic year got off to a very good start, and we currently stand at $81.7 million for the year compared to historical results of $27.2 million for the first quarter. We must also bear in mind that our progress academically and philanthropically has been extraordinary since 2000, yet in that time period, the stock market suffered a decline of 44.7 percent, and that after the tragedy of September 11, 2001, our country went into a steep recession.
In no way is this intended to diminish the disruptions and hardships that have occurred and will continue to accompany the current financial challenges. Rather, it reminds us that in the recent past, we faced serious financial challenges, managed through them, and continued to make great progress. To have knowledge and confidence that the future is bright is to acknowledge the special nature of Vanderbilt as a timeless institution and the steadfastness, energy, and entrepreneurial nature of those in our community.
Whatever times we are in, as a charitable institution with the most noble of missions, as your Chancellor, I will insist that our leadership, who with me hold budget responsibilities, must take care to spend Vanderbilt’s money wisely and efficiently and always with a focus on strategic priorities and investments in our people. It is never the time to be less than rigorous about discretionary spending and determining the need for new capital investments. Clearly, in times where our economy may be more uncertain, these principles have special force. But they should always guide us, given our public charge and our dependence on the generosity of so many. Indeed, it is my strong belief that the current focus that we bring to our work now will actually provide significant new funds for opportunistic investments, particularly in hiring outstanding faculty.
Throughout the years Vanderbilt’s excellence and progress have been appropriately supported by core principles of prioritization, fiscal prudence, conservative budget principles and collective efforts of conservation and careful stewardship. This is how we are able to meet our mission and place Vanderbilt among the best universities in the world, many of which are much older and wealthier. Most importantly, these principles have allowed us to invest in you — our faculty, students and staff — the human capital and community that will always define our greatness. I am most confident in all of you, who choose to be part of the Vanderbilt community and whose commitment and dedication help make Vanderbilt an institution that confronts challenges and seizes opportunities, through all times. Thank you, and I look forward to our progress ahead.
Nicholas S. Zeppos