Tough Times, New Approaches
Ten sessions in this track presented the latest on endowment management, debt financing and restructuring, liquidity, and cash management.
Regulating Risk in Reality
For more than three decades, NACUBO's Strategic Financial Analysis in Higher Education has been the go-to desk reference for ratio formulas and analytical tips. The newly released seventh edition of the popular publication was launched during a session led by the authors, Louis Mezzina, partner and national industry director for higher education, KPMG; Fredric Prager, managing director and founding partner, Prager, Sealy & Co.; and Ronald Salluzzo, president, higher education and state and local government practice, Attain. They were joined by Nancy Suttenfield, senior vice president and CFO, Wake Forest University, Winston-Salem, North Carolina. The session focused on institutional risk management and the critical role the governing board must play during these challenging economic times.
Mezzina, Prager, and Salluzzo believe that the bureaucratic layers of enterprise risk management must be recast so that chief business officers and governing boards can focus more on what they do every day: manage and assess risks at their institutions. Chief business officers must talk with governing boards about substantial risks that the institution is currently controlling and capable of responding to in the future. Understanding and mitigating risk as it relates to each employee's job responsibilities should become one of the institution's core cultural values.
While the depth of the 2008 economic collapse could not have been predicted, strategic financial analysis might have forced key questions regarding balance sheet and asset allocation vulnerabilities. Prager said the 2008 economic meltdown has defined how senior management will have to think about their institutions going forward. Suttenfield noted that conversations with board members at her institution were ongoing at that time. Subsequently, during the past two years, Wake Forest built a new oversight structure featuring a senior risk council—all departments are represented, and Suttenfield chairs. This infrastructure helps senior management pay attention to mission-critical areas, ensures communication, and informs the governing board. Effective institutions must manage, lead, and proactively advise their trustees.
Funding the Future
“The old ways of financing campus infrastructure are gone,” warned Cecil Phillips, president of Place Properties, in a panel discussion titled “Creating New Revenue Streams to Fund Capital Projects.” Phillips was joined by Craig Bazzani, vice president for institutional advancement at the University of Illinois Foundation; Michael Baird, director of RBC Capital Markets; Roger Goodman, vice president and senior credit officer, Moody's Investors Services; Jay Kahn, vice president for finance and planning at Keene State College; and Frederic Marienthal, partner, Kutak Rock.
Key to the discussion was the monetization of real estate assets to free up cash and take debt off the balance sheet. Monetization includes a diverse range of financing strategies that enable institutions to extract cash from otherwise illiquid, revenue-generating properties. This has become popular with institutions because of poor endowment performance, rising costs, and the fact that institutions are land rich, but cash poor.
There are three basic monetization structures:
- Single-asset—a nonprofit organization acquires a revenue-producing facility for the institution.
- Cross-collateralized—a nonprofit develops and/or acquires two or more revenue-producing facilities.
- Systemwide—an institution transfers a system of revenue-producing facilities to a nonprofit.
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