University Park, PA -- Recent turmoil in the credit markets is impacting higher education across the nation and Penn State is no exception, as one financial institution this week froze the assets of nearly 1,000 colleges with $9.3 billion invested in short-term funds.
Wachovia Bank has limited the access to short-term investment accounts that institutions — including Penn State -— rely on as checking accounts to make payroll and other expenses. However, Penn State is in a secure operating position, according to University officials.
"While we have great concern for what is happening in the financial markets, we have a strong overall liquidity situation that will be sufficient to meet our needs," said Gary Schultz, senior vice president for Finance and Business/Treasurer. "We have been taking steps to limit risk and keep our portfolio well-diversified so we do not have to rely on one funding vehicle."
Penn State was notified Monday that one of its primary liquidity funds, Commonfund Short Term Fund for which Wachovia was a trustee, was being discontinued and access to the funds was temporarily deferred and restricted.
"We have already been able to access 37 percent of our assets in the Commonfund Short Term Fund and this, combined with investments at other financial institutions, gives us confidence in our financial position," said Corporate Controller Joe Doncsecz.
The University will continue to make regular withdrawals from the Commonfund as the funds are released and will then redirect these amounts to other appropriate short-term vehicles. According to Commonfund, nearly 60 percent of the securities in the fund are scheduled to mature by Dec. 31, and thereafter would be available to investors.
Beyond liquidity issues, the market and economic turmoil potentially will impact Penn State in a number of ways including availability of student loans for those students who have gone through a private financial institution; the current variable rate debt of the University; financing of future capital projects; and endowment returns.
"Finance leadership will stay on top of these potential impacts," Schultz said.
“It's too early, of course, to tell the overall impact," said David Branigan, executive director of the Office of Investment Management at Penn State. "But the endowment portfolio is designed for the long-term and can weather short-term fluctuations. We will continue to watch events very closely. I'm not sure anyone will be able to escape being touched in some way by recent events in the markets."
University officials said the institution has a strong and varied portfolio working with a significant number of different money managers, so the institution should have no problem meeting its operating needs during these turbulent financial times. In fact, 50 percent of Penn State's assets are invested in public equities, 23 percent in fixed income/cash, and 27 percent in private capital partnerships.