Uncertain times call for difficult decisions to be made regarding investment and Ohio University’s endowment fund.
The value of commodities, or raw materials, has fallen sharply amid the uncertainty of COVID-19, including commodities OU used to invest in. But as of late February, the university reported a 0% commodity value in its investment portfolio.
There are several reasons for this 0% value, said Daniel Karney, an economics professor specializing in energy economics.
“Energy is a volatile sector,” he said. “And as we know right now, it’s not the best time for the oil sector (especially).”
The change in commodity investment could come from a variety of factors, including COVID-19, Karney said. Fewer people traveling means a decrease in the demand for oil, one of the largest traded commodities in the world. Oil prices can increase or decrease depending on the supply and demand of various economic sectors.
This is a big issue for the fracking industry, as most fracking companies aren’t profitable below $60 a barrel, Karney said. And with U.S. crude prices falling 43% Tuesday to $11.57 a barrel, it’s clear why OU has shied away from recent commodity investment.
The university didn’t provide data on its past investments into commodities, but it’s safe to assume that at one point, the number was above 0, Karney said. It’s clear market prices affect even the biggest institutions' investments, according to documents provided by the university.
It’s also clear that as of 2017, it was impossible for the university to not invest in entities like tobacco and oil, according to a previous Post report. This was, and still partially is, because most of OU’s funds are managed by companies that place big chunks of OU’s endowment money into mutual funds. Other money managers, who choose what stocks or bonds to buy with portions of OU’s endowment money, run those funds.
OU uses Wellington Trust Company, a diversified inflation hedges investment plan, to mitigate risk when investing in commodities.
“It really works like you place a little money into the fund over time to ensure protection in a volatile sector (like commodities),” Karney said.
The university also reported almost 30% value from domestic equities, or value of shares of stock issued by a U.S. company, including Vanguard S&P 500 ETF. OU also received about 28% of its investment portfolio value from international equities.
OU’s commodity inflation hedge investing differs from its traditional hedge fund investing, or riskier types of investing, greatly. This was reportedly done through two offshore accounts, one through Beach Point Total Return Offshore Fund II Ltd. and the other through Hirtle Callaghan Total Return Offshore Fund II Ltd, as of February.
These accounts carry higher risk and accounted for over $19 million, or 2.7%, of the university’s market value in its investments.
“There’s a lot of pressure right now to adjust and get ahead of the market,” Karney said. “No one knows how long (the decline in commodity investment) will last.”
