QUFA UPDATE: News that Matters

Queen’s approves first deficit budget in recent memory

EDUCATION: University’s board of trustees has asked principal to rework expenses for 2010-11, 2011-12.
From The Kingston Whig Standard.

http://www.thewhig.com/ArticleDisplay.aspx?e=1556812

Queen’s University’s Board of Trustees approved a deficit budget for the coming academic year and has asked principal Tom Williams to rework his proposed deficit budgets for 2010-11 and 2011-12.
Williams’ three-year plan currently projects an accumulated deficit of $33 million by the spring of 2012. Board chair Bill Young said many trustees expressed frustration at the $8.3-million deficit projected in Queen’s $360-million operating budget for next year. “We reluctantly approved the 2009-10 budget, but for 2010-11 and 2011-12 … we basically said, ‘You need to go back to the drawing board because those are unacceptable,” Young said. Young said this is the first time in recent memory that Queen’s has budgeted for a deficit. “I don’t think we’ve budgeted a deficit in living memory,” he said. “This is an unusual, very extraordinary circumstance.”
Young said Williams told the board in December that, given the poor economic situation, the university would likely bring a deficit budget to the board’s spring meeting. “What a deficit budget means is that we’re spending more than we’re bringing in and that’s unsustainable,” Young said. He said the board’s finance committee will be working with Williams over the summer to create new budgets for 2010-11 and 2011-12, to be presented at the board’s October meeting.

The board is hoping to balance the budget for 2011-12, Young said. “That would be an aggressive goal but one that we should be looking at achieving.” Young said one area in which the board is looking to reduce expenses is faculty compensation, which makes up about 70% of its operating budget. The faculty salary increase is 5.5% for 2009-10. He said the board doesn’t deal directly with employee bargaining groups, but he’s hoping Williams will be able to reach an agreement with the Queen’s University Faculty Association. “The fact that you could largely reduce the faculty salary increase from 5.5% to — pick a number, 2.5% or 3% — shows there’s an ability within our community to deal with this problem,” he said.

Young said the university has already looked at non-compensation areas to reduce the budget. “I think the other categories have really, really already been aggressively addressed,” he said. “Nine per cent is student aid and we’re determined to protect that … there’s only so much you can do with that (remaining) 21%.”

Williams echoes Young’s concern. He has been in discussion with the faculty association on ways to reduce the university’s wage bill. The association rejected a proposal to shut the university down for an extra five unpaid days per year to save roughly $400,000 a day in faculty compensation, Williams said.
Another proposal was to reduce the number of faculty by at least 50 positions by 2010-11 by offering faculty members early retirement programs. “Negotiations are still going on with the faculty association about that possibility,” Williams said. He’s hoping to reach an agreement soon. “Clearly we want this to happen as quickly as possible so it can have an early impact, but there is no fixed deadline.”

>Pensions: How a Good Plan Went Bad

By ELIZABETH CHURCH AND JANET MCFARLAND
From Globe and Mail. May 7, 2009
http://business.theglobeandmail.com/servlet/story/RTGAM.20090507.wrutam07/BNStory/Business/home

From the brick-and-beam boardroom of University of Toronto Asset Management, some of Canada’s sharpest financial minds have a bird’s eye view of the country’s largest campus, a combination of sturdy old stone buildings and gleaming new facilities. It’s a fitting backdrop, since UTAM’s work is directly linked to the financial well-being of the campus. The 14-person operation runs $2.8-billion of staff pensions and $1.5-billion of endowments, which traditionally produces tens of millions of dollars annually for student aid and faculty posts.

But this year the money has stopped flowing after investment losses reached $1.5-billion for 2008 and the university was forced to cancel a planned $62-million endowment payout, representing about 5 per cent of its operating budget. And now, the very existence of one of Canada’s most innovative investment funds is in question by the university that is bearing the brunt of its losses. An examination of its performance shows the vaunted investment fund was clobbered by a sharp reversal in the dollar, an untimely shift away from bonds, and a focus on hedge funds, including $5-million it lost through an indirect investment with Bernard Madoff, the Wall Street financier since jailed for fraud.

The currency hedging strategy – essentially counting on the loonie to stay above parity – was one of the hardest hits of all, costing the fund as much as $600-million. “It’s not like the board didn’t have a clue what they were doing. It’s not like that at all. We are all complicit,” says UTAM chairman Ira Gluskin. Currency hedging is extremely complex, he said, and what may seem clear now – the drop of the dollar – was not clear then. “After the fact in investment, everything is obvious,” says Mr. Gluskin, one of Bay Street’s most respected money managers.

While universities across the country are still reeling from the market crash of 2008, perhaps none has struggled more with the financial crisis. UTAM was a pioneer among endowment funds, deliberately importing the investment styles of Yale and Harvard universities to Canada in 2000. And given its location, it was able to draw on Bay And given its location, it was able to draw on Bay Street talent, including its chief executive officer, Bill Moriarty, who joined it last year from Royal Bank of Canada.
But the same complex investing strategies that won praise during the bull years have angered many faculty, and prompted the university administration to consider assigning its pension money to another manager as part of a province-wide proposal to pool the pension funds of many Ontario universities. “We are considering everything,” said university Provost Cheryl Misak.

Settling into a boardroom chair in the restored heritage building of Toronto’s MaRS research centre, Mr. Moriarty remains unshaken by the crisis. He stands committed to UTAM’s sophisticated investing approach, reciting phrases like “portable alpha” and “risk budgets” to explain portfolio decisions. “You can’t build a portfolio strategy around a single year, and you can’t build a portfolio that’s there to protect you completely in a financial crisis,” Mr. Moriarty argues. “Because if you do that, over the longer term you’re going to pay a very significant price.”

Indeed, since the beginning of this year, Canada’s stock market has rebounded 13 per cent, boosting UTAM’s equity holdings. Mr. Gluskin says he is “well aware” of criticisms from the faculty association and from donors whose funds have eroded sharply in value. “Whenever an investment manager has a major down year, there are always a lot of questions about the strategy. UTAM has done well over the long term and we hope it will do so in the future.” Mr. Gluskin is frank in his assessment of the managers’ performance, saying UTAM “did lousy” last year – but not much worse than other U.S. university funds with a similar investment approach.
In retrospect, one of the fund’s worst moves was a policy to fully hedge the portfolio’s U.S.-dollar exposure against an increase in the Canadian dollar, essentially placing a bet that the Canadian dollar would rise further in 2008 after hitting an all-time high in late 2007. When the 100-per-cent hedging strategy was adopted in 2007, it paid off handsomely as the Canadian dollar soared. But it was kept in place in 2008 even as the currency retreated, and it proved a costly error after the dollar tumbled 25 per cent last fall in the midst of global market turmoil.

By December last year, UTAM was forced to quickly liquidate government bonds to raise money to settle a slew of hedging contracts that had gone dramatically wrong. Mr. Moriarty could not put a dollar figure on the costs of covering the contracts, but UTAM’s annual report notes that the fund’s total transaction and rebalancing costs for all elements of its portfolio accounted for about 2.3 percentage points of the fund’s 29.5-per-cent loss last year, or about $120-million.

Transaction costs were only part of the pain incurred from the hedging strategy. Mr. Moriarty says the 29.5-per-cent loss last year would have been about 12.5 percentage points better if UTAM had not hedged its U.S. dollar exposure. That means had there been no hedging last year, the university’s pension and endowment funds would have saved more than $600-million in losses. The fund has since moved to a 50-per-cent hedging position, a more neutral stance on the movement of the dollar.
Mr. Gluskin, who like other directors is a volunteer, says a change in leadership at UTAM last year led to “some execution problems,” including transaction fees that were “higher than they might have been.” UTAM’s high exposure to hedge funds and its use of baskets of hedge funds – so called funds of funds – also has come under attack as a costly strategy. Hedge funds accounted for almost one-third of UTAM’s investments by the end of 2008 and its reliance on funds of funds exposed the university to about 400 different hedge funds, including those of Mr. Madoff. The exposure to Madoff funds cost about $5-million to the pension fund alone.

Over all, UTAM’s hedge fund portfolio lost almost 20 per cent last year, although UTAM notes that publicly traded stocks did even worse, losing more than 30 per cent in Canada last year and even more in the U.S. and overseas. At a time when there is growing unease among public pension funds about the cost and secrecy associated with many hedge funds, Mr. Moriarty says UTAM will not significantly lower its exposure to them, but is moving away from funds of funds in favour of direct hedge fund investments. “The majority of [funds of funds] have not done a particularly good job in terms of managing the risk,” he says.
Hedge funds now account for the largest portion of UTAM’s investments in “alternative assets,” which also include holdings such as private equity, infrastructure, commodities and real estate. The university’s pension fund had 46 per cent of its assets in this “alternative” category at the end of last year – up from just 18 per cent the year before – while equities accounted for 39 per cent of the holdings and bonds 15 per cent.
That mix is significantly more aggressive that the average fund of UTAM’s size. Data show an average Canadian pension fund with more than $1-billion in assets held 46 per cent equities, 29 per cent bonds and 25 per cent alternative assets in 2008. UTAM paid a price last year for its decision to hold just 15 per cent of its assets in bonds, which is far less than the 40-per-cent bond weighting seen at a smaller, more passive pension fund. In its annual report, UTAM discloses it would have improved its losses by 5.1 percentage points last year if it had had a 40-per-cent bond weighting – a savings of $260-million.

Whatever the concerns about investment choices or returns, former university president Robert Prichard believes dismantling the independent asset manager he helped to create is not the answer. The University of Toronto began looking for better ways to manage its growing pension and endowment funds more than a decade ago, about the same time it became the first Canadian university to crack the $1-billion mark in a fundraising campaign. Its growing pension assets also set it apart among its peers in Canada. Mr. Prichard recalls that staff visited schools such as Harvard, Yale and Princeton before recommending the creation of a separate entity responsible for investing the university’s endowment and pension funds, run by full-time professional staff and supervised by an expert volunteer board and accountable to the university. “The stakes were simply becoming too large to leave the responsibility to part-time management,” he explains.
Retired Toronto-Dominion Bank chairman Robert Korthals, UTAM’s first chairman, says that before UTAM, funds were managed by university finance staff and outside managers and performance trailed similar plans. “The feeling was that if we could increase the performance of the university’s funds, people would give more as well – it would go hand-in-hand,” he says.

UTAM had a rough start, launched in 2000 just as tech stocks crashed and terrorist attacks further weakened markets in 2001 and 2002. Over the next five years, UTAM had big gains as markets rebounded, and it increasingly shifted its strategy into hedge funds and less-traditional investment areas. Then markets collapsed in 2008, and the risks involved in such a strategy became apparent. George Luste, head of the university’s faculty association and UTAM’s most constant critic, says it is time for the university to get out of what he calls “a losing game.” “The evidence of the past nine years, not just the catastrophic losses in 2008, suggest that it is time to admit, for the good of the pension plan and our institution, that the UTAM experiment has been an expensive mistake,” he wrote in a recent report, one of many number-filled critiques he has issued in recent years. Prof. Luste calculates that UTAM has a compound annual return of just 1.8 per cent since 2000, compared with 5.3 per cent for a more passive portfolio that he designed – a difference of about $665-million. Mr. Moriarty says he has not put his own dollar figure on the value UTAM’s management has brought.

In the face of faculty concerns, the university is pledging to review its approach. In a letter sent to staff earlier this month, U of T president David Naylor said the university is obligated “to ask some hard questions about broader structures and strategies for managing our investments” in light of the poor returns last year.

Plugging the brain drain

Toronto Star May 05, 2009

http://www.thestar.com/comment/article/628891

In a commendable effort to plug a possible “brain drain” of scientific talent, the Ontario government has launched a new $100 million fund to support gene-related research in this province. In effect, Queen’s Park is filling a vacuum left by Ottawa, which has cut $148 million from the budgets of three basic research granting councils.

To be fair, the federal budget in January also included increases in other research spending, including $2 billion over two years for building or fixing research facilities and other science infrastructure on university and college campuses. But what good is a new lab if there are no scientists to conduct experiments in it?
In the United States, the new Obama administration understands this and has committed to spending $10 billion on health research alone. That remarkable level of investment, coupled with the cuts implemented by the Conservative government in Ottawa, could entice our best and brightest scientists to jobs south of the border.

Indeed, there is evidence this may already be happening. A top AIDS researcher at the University of Montreal, Rafick-Pierre Sékaly, has announced that he and his 25-member team are moving to a Florida gene therapy and vaccine institute due, in part, to Ottawa’s cuts. “Nothing speaks more loudly to the short-sightedness of this government than the gutting of our scientific community,” says Liberal science critic Marc Garneau. “We’re in a global competition for the talent needed to create the jobs of tomorrow – and we’re losing ground because of this government’s lack of vision.”
By instituting a new genomics fund, Queen’s Park is trying to blunt such losses. But the provinces can’t address this country’s research deficit alone. They need help from Ottawa.

>Western Cuts 55 More Positions
MyFM Radio Fri, 01 May 2009
http://www.myfmradio.ca/1057/wire/news/5280068_Western_Cuts_55_More_Positions_124351.php

More job cuts expected by the end of month, this time it’s at the University of Western Ontario. The university plans on cutting 55 additional positions by the end of May to deal with a predicted deficit in 2009. According to the board the new budget required the elimination of 114 staff positions. Some employees agreed to accept exit packages, 25 management jobs will further need to be reduced along with 30 jobs in Western’s support staff group. The board also endorsed an average tuition fee increase of 4.5% for the 2009-2010 school year

Exploiting the economic crisis to attack unions
Canada’s top 100 CE0s ‘earned’ $1 billion last year – enough to pay 20,000 workers a salary of $50,000 each. Sadly, hard facts like this are never allowed to get in the way of an attack on unions,

By Larry Brown National Secretary-Treasurer National Union of Public and General Employees (NUPGE)

Ottawa (16 Jan. 2009)
http://www.nupge.ca/print/790

Last year the heads of the 100 largest companies in Canada ‘earned’ an average of $10 million each. Collectively, they took home $1 billion dollars – enough to pay the wages of 20,000 workers earning $50,000 each.

That kind of absurd economic plutocracy has been developing for years, part of a growing culture of greed and entitlement that led directly to the economic collapse we’re now enduring.
One of our political leaders recently proclaimed that “we’re all in this mess together.” That might be true at some level, but we sure aren’t all in the same place in the mess. The CEOs who drove their companies into the ditch will walk away with their millions of dollars in severance and their multi-million dollar annual pensions. The workers who lose their jobs with those companies will, if they are lucky, qualify for Employment Insurance (EI).

The irresponsible greed straddled the border: financial investment companies in the U.S. paid their money managers some $38 billion dollars in bonuses in 2007, an increase of 6% over the year before, even though there were massive losses in the market value of their securities. These bonuses were paid to 186,000 money managers, an average of $201,500 per employee.

In 2008, the bonuses fell, by 40%. But the drop would have been much more severe, perhaps as much as 70%, had it not been for the U.S. government’s bailouts. The average managing director at an investment bank, a title typically earned after eight years on the job, will have received a bonus of $625,000 in 2008.
That’s down from last year, but it is still 15 times the income of the average American household. Top bankers could receive as much as $1 million – in bonuses. Even a bond trader just out of business school would have gotten as much as $170,000 bonus money in 2008. One apologist says, with unintended irony, that the firms “can’t afford to lose talent.”

Congress failed

The U.S. government rescue only limits the salaries of five top executives of each of the participating financial firms, and even those limits are token – unenforceable. Congress did nothing to restrict Wall Street firms from using taxpayer funds to boost the compensation of other investment bankers.
Now compare all this to the response of the same government to the auto industry. The Bush administration made aid to the auto companies conditional on U.S. auto workers taking a wage and benefit reduction, down to the level of the non-union workforce of Honda, Toyota and Nissan. Some of this non-union work takes place in ‘right to work’ states where workers don’t even have the right to join effective unions.
So who do we conclude is more guilty of excessive compensation – the bond trader who makes hundreds of thousands in bonuses from the bailout, or the autoworker who makes way less than that for a year’s work?
In Canada, the CEOs of our banks are on the list of the absurdly highly paid, but the bank bailouts here made no mention of executive salaries. Yet here as well, the autoworkers, who earn less per year than our CEOs make per week, must pay a heavy price if that industry is to get a bailout.

Stephen Harper’s government has been less precise about how much workers have to give up but he has been no less clear that the price of aid is lower autoworkers’ salaries. One supposes that it was the unionized workers who decided to build gas guzzlers and the highly profitable SUVs, instead of more saleable cars, and who let the quality of the products lag behind those of imports. Why blame the mere executives, the CEOs and CFOs, when it’s so clear that unionized wages are the problem? Why indeed.

Of course it’s not just unionized autoworkers who are identified as public enemies whose wages have to be controlled – at least according to the right-wing opinion punditry.

Scapegoating workers

Public sector workers too, we are told almost daily, with their allegedly unreasonable demands and their ostensibly total job security, must be brought under control if we are to avoid armegeddon.
Amazing. Not one public sector worker made $10 million last year. Few made 1% of that. All through the 90s public sector workers were subject to layoffs and wage freezes and wage rollbacks and legislative imposition of contracts. But the amount of antiunion vitriol being directed to public sector workers because they dare to have unions would lead an observer to think that the biggest economic problem we have is union wages in the public sector.

The ill-fated Economic Update brought forward by the Tories included public sector wage controls and even wage rollbacks as a matter of course, and these moves were considered so obvious they didn’t even attract much debate. Now even the RCMP is having to face a unilateral reversal of an agreed upon wage increase because, to the right wing, wages of those at the working level are always the problem. It’s bailouts for banks but wage controls for public sector workers.

Meanwhile, Finance Minister Flaherty brags about massive Tory tax cuts, and the federal government’s independent budget officer says that looming federal deficits are the direct result of deliberate policy changes like tax cuts, not the economic slowdown. Again, it’s tax cuts for corporations and wage controls for unionized workers.

In fact, every economist who can add knows that the worst thing we could do right now is to cut workers’ wages anywhere. The economy needs to be strengthened from the bottom up. Pumping money into the banks will not re-inflate the economy, will not ensure that money is spent in our communities. Cutting the jobs and incomes of workers will prolong the slump, not resolve it.
Hard facts are ignored

But facts are never allowed to get in the way of an attack on unions. As usual, whatever the facts or circumstances, for the right wing, ‘they have seen the enemy, and it is always us.’

National Union of Public and General Employees
15 Auriga Drive, Nepean, ON K2E 1B7 613-228-9800 phone 613-228-9801 fax

Queen’s atmosphere ‘tense’
EDUCATION: Faculty association accuses university of balancing books on the backs of professors.
http://www.thewhig.com/PrintArticle.aspx?e=1550332

Tension is mounting at Queen’s University, where the faculty union is accusing administration of balancing the books at the expense of professors and instructors.

Last week, Principal Tom Williams said layoffs would be unavoidable unless all staff agreed to cost-saving measures such as unpaid days off. The Queen’s University Faculty Association responded publicly yesterday, charging that the administration has effectively begun the layoff process by planning to not re-hire a number of part-time, contract faculty in the fall. “The signals in quite a few departments are that many of these contract academic staff will not get contracts next year,” said association past-president John Holmes, a professor in the department of geography.

Queen’s has also said that it will not fill 54 full-time tenured positions over the next three years as professors retire or leave the university. “The principal seems fixated that the only way to deal with the financial crisis is to cut faculty wages. The problem is not faculty wages,” said Holmes. He said other expenditures have pushed Queen’s into its deficit position — expected to reach $33 million by 2011 — including major building projects such as the new Queen’s Centre and property acquisitions such as the Tett Centre and the Prison for Women. Holmes said Williams’s characterization of the talks as being stalled is wrong. QUFA and university negotiators, for example, have been poring over a $20-million budget item listed as “supplies,” trying to determine exactly how and where that money is spent.

Speaking for Queen’s administration, vice-president academic Patrick Deane said the atmosphere in meetings is “understandably tense. But he also stressed that it was the university and not the faculty association that made the first “overtures for discussion.” The reality of the part-time teaching positions, Deane said, is that “some term appointments aren’t going to be refilled. “Everyone understands these appointments are limited and the number will vary every year,” he said. “I don’t see this as layoffs as they characterize it.”
Faculty association president Peter Dacin, a professor of marketing in the school of business, said cutbacks will hurt “the long-term academic mission of the university. The academic quality of the programs we offer could be affected drastically.” As the ratio of students to teachers increases, said Dacin, students may look twice before choosing Queen’s over other universities. “We know that students share a lot of information with the Internet,” he said. “If these things get out, word will get around quickly.”
Deane said faculty may not have liked what Williams said about the ongoing talks and the financial crisis, but the principal “described the situation as it is.” “We are all collegially concerned about [QUFA’s] issues,” he said. “It’s very difficult, but the financial realities are what they are.”

Yesterday, the University of Western Ontario announced that it will lay off 55 staff — 25 from its professional and management association and 30 from its staff association.

Province investing heavily in higher education
http://www.thewhig.com/ArticleDisplay.aspx?e=1548407

Provincial investments in colleges and universities have consistently increased since the Dalton McGuinty government took office in 2003. Our government began a trend of increased funding in 2005 with the Reaching Higher plan, a $6.2-billion investment in post-secondary education and training, and the largest such government investment in more than four decades.

Through Reaching Higher, annual operating funding for Queen’s University has increased by 39%, from more than $123 million in 2003 to $171.5 million last year. In 2008, Queen’s also received more than $3.3 million for capital projects.

St. Lawrence College’s annual operating funding increased 43% in the same period, rising from $27 million in 2003 to almost $38.5 million last year.

As a result of our government’s investments, there are 100,000 more students attending college and university across Ontario today than there were in 2003. Our students have more classroom spaces, state-of-the-art labs and high-quality learning centres. We’ve built a post-secondary education system that is more accessible for aboriginal students, students with disabilities and students who are the first in their family to go to college or university.

The global economic crisis has not left our colleges and universities unharmed, hitting endowment funds and other investments. Despite the worldwide financial troubles, the Ontario government continues to place post-secondary education and training at the top of its priority list. Our 2009 budget increases funding for the post-secondary sector by more than $350 million and provides $780 million for infrastructure projects at our colleges and universities.

Through our investments in postsecondary education and training, our government is making sure that as the economy grows stronger, Ontario has the highly skilled, highly educated workforce needed to be competitive.

Hon. John Milloy Minister of Training, Colleges and Universities Toronto

FROM THE QU WEBSITE:
Campus News
Board unhappy with deficit budget Tuesday May 05, 2009

Queen’s Board of Trustees has reluctantly approved a 2009-2010 deficit budget.
After extensive debate at its May 2 meeting, the board authorized a $360-million operating budget, which carries a $8.3-million deficit.

“It’s bad financial management for us to live beyond our means, and we must take the tough steps to address this,” said Board Chair Bill Young. Steep declines in university investments due to the global economic crisis, reduced government funding as a proportion of the operating budget, and increasing compensation pressures forced the university to present the budget to the board as the first of a three-year plan to get expenses to meet revenues. The budget includes the first round of a three-year, 15-per-cent budget cut across academic and administrative units.

“This is the first time in recent memory that the university is actually budgeting for a deficit,” said Bruce Mitchell, acting board finance committee chair.

The next two years project deficits of $14.6-million in 2010-2011 and $8.4-million in 2011-2012. The accumulated deficit by 2011-2012 is projected to be $33-million, which Mr. Young calls “unacceptable.”
The board’s finance committee will be meeting intensely with university management over the summer to adjust the deficit projections for Years 2 and 3. “I think we need to ask the administration to go back to the drawing board,” said Mr. Young. “We’ve got a lot of work ahead of us.”

Several trustees voiced distress about the financial situation, saying that the university needs to address spiraling compensation costs that comprise more than 70 per cent of the operating budget, and that the university can’t wait until union contracts expire.

“We need to throw traditional principles about pay out the door, because the options are so brutal,” said Trustee David Pattenden.

Principal Tom Williams told the board that discussions about a proposed early retirement program are continuing with the Queen’s University Faculty Association (QUFA). QUFA has rejected a proposal to close down the university for a few unpaid days over the year, which could save $400,000 each day.
“I’m concerned by statements of the faculty association that they don’t understand the nature of the problem,” said Principal Williams. “It worries me because the clock continues to tick.”
For more information on the university’s financial situation, visit http://www.queensu.ca/principal/financialupdate
For more news from the Board of Trustees and University Council meetings, see the May 11 Queen’s Gazette.

From – Gillian Barlow

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