Universities Bolster Fund Management

There is an independent fund management company called, “Harvard Management Company” at Harvard University. About 40 investment experts manage about 2.5 trillion won in stocks, bonds, hedge funds, and real estate. The investment profits over the last 10 years amounts to 10 trillion won. According to Bloomberg News, the investment earnings rate of the U.S.’s top 25 universities exceeds 15 percent and many universities now rely on its fund management earnings to cover their expenditures.

How are Korean universities doing? Not only is the size of their funds small, their earnings rates are pitiful. Most universities so far focused on safe investment areas such as fixed bank deposits. Recently, some universities such as Seoul National University and Sogang University have set a wave of aggressive investment tactics.

Tuition fees are funneled straight to CDs and corporate bonds-

Sogang University is famous for managing its funds efficiently. According to an analysis of financial statements from major private universities done by Korea Foundation for the Promotion of Private School, Sogang University had the best investment records. Managing a total of 163.4 billion won (78.8 billion won in tuition fees and 84.6 won in reserves), it earned 8.8 billion won achieving an earning ratio of 5.4 percent. Compared to other universities with one to two percent in earning ratios, it did spectacularly.

Sogang University keeps just ten percent of its funds in fixed deposits, leaving the rest in corporate bonds, bond funds, certificates of deposit (CD), Asset-Backed Securities (ABS), and notes. It does not invest in stocks yet.

The finance committee, which is composed of alumni fund managers and business administration and economics professors, plots the basic strategy for fund management at Sogang University.

It adheres to some principles.

First, the committee must differentiate between investment companies depending on the business cycle. When times are good, the committee uses securities companies, savings banks, and investment companies. When the business cycle is at a low, the committee looks to banks, where their money is safe. Another principle is to invest all the money it can. Joo Seong-yeong, director of finance at Sogang University, says, “Time is money. We invest all our money. The minute we get our hands on the tuition fees, we invest right away.”

Investment in private equity funds for company acquisition-

Seoul National University is well known for its aggressive investment style. It currently has investments in 50 places.

Some 200 billion won is invested in bonds (40 percent), stocks (15 percent), private equity funds (15 percent), offshore investment funds (10 percent), money market funds (10 percent) and derivatives (10 percent).

Seoul National University also entitles professors and alumni working in the financial sector to make decisions at the development fund managing committee.

Professor Joo Jong-nam, a director of the SNU Foundation, says, “We used to invest in fixed bank deposits and government bonds. Now we take a more aggressive approach. We now balance our funds in safe investments, and dangerous, but high-profit yielding investments. Seoul National University made headlines, when it invested 5 billion won in a private equity fund for the acquisition of Central Savings Bank.

“Better investment performance will lead to a better university”-

Most Korean universities have a very conservative attitude toward managing funds.

Ewha Womans University holds 550 billion won of its savings in fixed bank deposits (90 percent) and government bonds (10 percent). It is not taking chances with funds.

An employee of the university says, “We have no choice but to play safe with our funds. The school is very conservative when it comes to money. We even view investing in funds as dangerous.”

Korea University has 50 to 60 percent of its funds in safe investments like fixed deposits and bonds. It is starting to diversify its investments. It recently put 20 to 30 percent in private equity funds and five percent in derivatives.

Yonsei University claimed that it does not want the public to know about its financial status and refused to release its investment records.

A university staff member says, “It is hard to make long-term investments, because most of our tuitions are spent on salary, operation costs, and construction.

Investment experts say that universities must now be more aggressive in their investment efforts. Vice President Kang Shin-woo of Korea Investment Trust Management warns, “Finance is fundamental in universities as well as in corporations. Universities that invest wisely will leap ahead, while those that do not will have problems with their funds.”

ssoo@donga.com