Cornell University's endowment performance in fiscal 2012's first quarter, ending Sept. 30, has not been affected by the current volatility in the U.S. equities market as badly as many people might think, according to A.J. Edwards, Cornell's interim chief investment officer.

This is despite the fact that the U.S. equities market declined by 6 percent in August, by one measure, which was the fourth consecutive month of stock declines and the worst August since 1998, when U.S. stocks dropped by 15.6 percent. Moreover, recent events, including concerns over European sovereign debt, have caused equity markets around the world to decline. To date, in 2011, he notes, equities for international and emerging markets have dipped 14 percent and 15 percent respectively.

In comparison, says Edwards, Cornell's endowment is holding steady. "The $5.2 billion endowment is flat so far in calendar 2011, thanks to a well-diversified portfolio and best-in-class managers, both of which continue to add value in down markets," he said.

Edwards and Joanne DeStefano, vice president for finance and chief financial officer, review the university's overall liquidity each month, assessing how current market conditions may affect the endowment and working capital. "This has led to a much deeper understanding of how much cash the university as a whole needs to keep on hand to operate most efficiently," DeStefano said.

The university has also taken the opportunity to issue fixed-rate bonds to refinance variable-rate bonds as interest rates have declined over the last couple of years, she notes. In 2008, 80 percent of the university's $1 billion debt portfolio was in variable-rate bonds and 20 percent in fixed-rate bonds. Today, the reverse is true, with the debt portfolio 80 percent fixed-rate bonds and 20 percent variable. Variable-rate bonds are considered a higher risk, especially during times of market uncertainty, because they are bought and sold frequently, either on a daily or weekly basis, says DeStefano. "Having a higher proportion of debt with fixed interest rates allows us to better predict how much money we'll have coming in and going out, and that makes our budgets more accurate. And it allows for less uncertainty during volatile market conditions," DeStefano said.

"Cornell is now in a much better position to withstand the type of market volatility we are currently experiencing compared to three years ago," she reports. "We have taken several steps to reduce fiscal risk, and in addition, over the past couple of years, we have put several cost controls in place and seen our expenses go down."