The NY Times recently wrote how university endowments may be in for lower investment returns. Many private universities rely on their endowments to support day to day activities, fund student financial aid and support capital improvements. Harvard University’s $30 billion endowment, one of the nation’s largest, supports 35% of the university’s annual budget. Over the last 20 years, Harvard’s endowment generated an enviable 12.5% annualized return by taking on often-illiquid alternative investment strategies such as hedge funds, venture capital and private equity funds. This strategy was emulated by other medium- and small-sized endowments across the country. But Harvard’s successful model for investing may be ending and medium to small endowments may face significant risk. 2012 fiscal year results are beginning to be released, and we see that Harvard and other large endowments are reporting low or negative performance. A recent report by the National Association of College and University Business Officers for fiscal year 2011 shows that large, medium and small endowments all underperformed a simple portfolio mix of 60% stock and 40% bonds over one-, three- and five-year time periods. Endowment performance is one important area we focus on in assessing higher education credits. To do this, we can separate the universe into public and pricate sectors when analyzing higher education credits. With private higher education credits, we focus on credits with solid operating margins, diversified course offerings and sustainable annual endowment contributions. For public universities, we look for solid state funding levels through an economic cycle in states with strong balance sheets and good fiscal controls. Endowment performance is an important credit metric, but equally important is performing issuer-specific fundamental credit research to develop a complete picture of the credit’s ability to repay its outstanding debt. SNW Asset Management continues to see value in the higher education sector for both public and private higher education institutions, and will diligently search out the best opportunities in the sector to add value for our clients.