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06/06/11
The Economy and its Effect on Higher Education
William F. Jarvis, Managing Director, Commonfund Institute
EDUCAUSE Live! Web Seminar
March 17, 2009
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2
Market Headlines | Setting the Context
Bursting bubbles and the ripple effect
Credit market freeze
Volatility returns with a vengeance
Consumer wealth declines by between $10-12 trillion
Central banks become ATM machines
Recession is here: how long will it last?
The repricing of risk
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3
0
200
400
600
800
1000
1200
1400
1600
1800
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Market Stress EventsS&P 500 Index
LTCM & RussianDebt Crisis
(July 1998 - Oct
1998)
2002 DotCom
Hangover
(Mar 2002 - Sept
2002)
Market Crash
(October 1987)
Kuwait Invasion
(Aug 1990 Feb
1991)
Credit Crisis
(2007)
?
Source: Bloomberg, S&P 500 Index, January 1985 October 31, 2008
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4
Regional Performance
July '07 - June '08
4.64
-8.81
-11.35-12.04
-13.12
-30
-25
-20
-15
-10
-5
0
5
10
MSCI
Emerging
Markets
MSCI World
ex US
MSCI
Europe
MSCI Japan S&P 500
Percent(%)
3Q08
-8.44
-17.65
-20.67 -20.77
-26.95
-30
-25
-20
-15
-10
-5
0
5
10
S&P 500 MSCI Japan MSCI World
ex US
MSCI
Europe
MSCI
Emerging
Markets
Percent(%)
Source: Factset
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5
-46.2%
-23.8%
-30.2%
-15.8%
-46.3%
-51.44%
32.0%
51.8%
18.8%
29.1%
22.2%
-60%
-40%
-20%
0%
20%
40%
60%
1972-1975
(33 months)
1980-1983
(32 months)
1987-1988
(15 months)
1990-1991
(17 months)
2000-2003
(37 months)
2007-11/20/2008
(14 months)
Peak to trough "drawdown"
Percent change in 12 months following trough
S&P 500 | Historical Downturns
Source: Bloomberg
Years to
Recovery 5.8 0.4 1.7 0.3 4.7 ?
?
?
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6
U.S. Recession History The Last 150 Years
Source: NBER
Peak to Trough
?
18
832
18
6538
13
1017
1818
23
1324
23
718
14
13
43
138
1110
8
1011
16
616
88
15 +
0 10 20 30 40 50 60 70
June 1857(II)-December 1858 (IV)
October 1860(III)-June 1861 (III)April 1865(I)-December 1867 (I)
June 1869(II)-December 1870 (IV)October 1873(III)-March 1879 (I)
March 1882(I)-May 1885 (II)
March 1887(II)-April 1888 (I)July 1890(III)-May 1891 (II)
January 1893(I)-June 1894 (II)December 1895(IV)-June 1897 (II)
June 1899(III)-December 1900 (IV)
September 1902(IV)-August 1904 (III)May 1907(II)-June 1908 (II)
January 1910(I)-January 1912 (IV)
January 1913(I)-December 1914 (IV)August 1918(III)-March 1919 (I)
January 1920(I)-July 1921 (III)May 1923(II)-July 1924 (III)
October 1926(III)-November 1927
August 1929(III)-March 1933 (I)May 1937(II)-June 1938 (II)
February 1945(I)-October 1945 (IV)
November 1948(IV)-October 1949July 1953(II)-May 1954 (II)
August 1957(III)-April 1958 (II)April 1960(II)-February 1961 (I)
December 1969(IV)-November 1970
November 1973(IV)-March 1975 (I)January 1980(I)-July 1980 (III)
July 1981(III)-November 1982 (IV)
July 1990(III)-March 1991(I)
March 2001(I)-November 2001 (IV)
December 2007 (IV)-March 2009 +
1945 200110 Cycles10 Month Average
Duration in Months
1919 1945
6 Cycles18 Month Average
1887 1919
10 Cycles17 Month Average
1857 1885
6 Cycles30 Month Average
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7
When Bear Markets EndThe Standard & Poors 500 Stock Index
Data for the Current Bear Market is preliminary through 12/31/2008.NOTE: Data includes post-WWII Bear Markets as defined by the Standard & Poors 500 Stock Index.
Source: Aronson Johnson Ortiz; Standard & Poors; Crandall, Pierce &Company
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VolatilityAugust 1998 December 2008
10/13/2008265
12/31/2008
190
11/20/2008
81
12/31/2008
40
0
50
100
150
200
250
300
Aug1998
Dec1998
Apr1999
Aug1999
Dec1999
Apr2000
Aug2000
Dec2000
Apr2001
Aug2001
Dec2001
Apr2002
Aug2002
Dec2002
Apr2003
Aug2003
Dec2003
Apr2004
Aug2004
Dec2004
Apr2005
Aug2005
Dec2005
Apr2006
Aug2006
Dec2006
Apr2007
Aug2007
Dec2007
Apr2008
Aug2008
Dec2008
MOVE
0
10
20
30
40
50
60
70
80
90
VIX
MOVE Index (left axis)
VIX Index (right axis)
Source: Bloomberg
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Money Market StressAs of September 30, 2008
Source: Bloomberg, Short term rates ending date 9/12/2008, 3 Month T-Bill vs 3 Month LIBOR Spread end date 9/17/2008
Short Term Markets
Fed Funds Targe t
3-Month T-Bill Yield
30-Day ABCP
90-Day ABCP
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
0
5Jan07
1
9Jan07
0
2Feb07
1
6Feb07
02Mar07
16Mar07
30Mar07
1
3Apr07
2
7Apr07
11May07
25May07
0
8Jun07
2
2Jun07
06Jul07
20Jul07
03Aug07
17Aug07
31Aug07
14Sep07
28Sep07
1
2Oct07
2
6Oct07
0
9Nov07
2
3Nov07
0
7Dec07
2
1Dec07
0
4Jan08
1
8Jan08
0
1Feb08
1
5Feb08
2
9Feb08
14Mar08
28Mar08
1
1Apr08
2
5Apr08
09May08
23May08
0
6Jun08
2
0Jun08
04Jul08
18Jul08
01Aug08
15Aug08
29Aug08
12Sep08
26Sep08
Yields(%)
3 Month T-Bill vs. 3 Month LIBOR Spread
9/30/2008
3.15
0.00.4
0.8
1.2
1.6
2.0
2.4
2.8
3.2
3.6
31Jan97
30Apr97
31Jul97
31Oct97
31Jan98
30Apr98
31Jul98
31Oct98
31Jan99
30Apr99
31Jul99
31Oct99
31Jan00
30Apr00
31Jul00
31Oct00
31Jan01
30Apr01
31Jul01
31Oct01
31Jan02
30Apr02
31Jul02
31Oct02
31Jan03
30Apr03
31Jul03
31Oct03
31Jan04
30Apr04
31Jul04
31Oct04
31Jan05
30Apr05
31Jul05
31Oct05
31Jan06
30Apr06
31Jul06
31Oct06
31Jan07
30Apr07
31Jul07
31Oct07
31Jan08
30Apr08
31Jul08
Yields(%)
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Real Interest Rates
Source: Bloomberg
Fed Funds-CPI yoy, Aug-78 to Aug-2008
-6
-4
-2
0
2
4
6
8
10
12
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
PercentChange
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U.S. Dollar IndexWeekly Data 8/27/1971 - 10/03/2008 (Log Scale)
(I 240)1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
79
83
87
92
97
102
107
112
118
124
131
138
145
152
160
79
83
87
92
97
102
107
112
118
124
131
138
145
152
160
Source: Ned Davis Research
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12
InflationJanuary 2003 November 2008
0.4%
4.2%
1.1%
2.0%
-4%
-2%
0%
2%
4%
6%
8%
10%
Jan2003
May2003
Sep2003
Jan2004
May2004
Sep2004
Jan2005
May2005
Sep2005
Jan2006
May2006
Sep2006
Jan2007
May2007
Sep2007
Jan2008
May2008
Sep2008
Percent(%
)
PPI (YoY)
PPI ex Food & Energy (YoY)
CPI (YoY)
CPI ex Food & Energy (YoY)
Source: BLS
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13
Energy CostsDaily Data 7/30/1992 2/12/2009 (Log Scale)
Source: Ned Davis Research
(DAVIS60)
37.2 37.8
55.2
69.877.0
145.7
17.5
25.2
40.746.8
56.250.5
30.8
1214161821252933394552617182
95111129150
1214161821252933394552617182
95111129150
Extreme Optimism
Extreme Pessimism2/12/2009 = 24.85
77.579.5
74.0
83.9
71.368.5
85.3
23.027.0
39.2
27.5
19.6
38.036.8
2024283236
404448525660646872768084
2024283236
404448525660646872768084
S D1993M J S D1994M J S D1995M J S D1996M J S D1997M J S D1998M J S D1999M J S D2000M J S D2001M J S D2002M J S D2003M J S D2004M J S D2005M J S D2006M J S D2007M J S D2008M J S D2009
West Texas Spot Crude Oil
NDR Crowd Sentiment Poll for Energy Futures (Seven-Day Smoothing)
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14
November 2008
166.05
April 1991
76.8
Oct 1989
82.4
June 2006
226.3
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
YearOverYearChange
0
50
100
150
200
250
IndexValue
Year over Year Change
Composite-10
S&P/Case-Shiller Home Price Index(Composite of 10)
6.8% Price DeclineOctober 1989 to April 1991
Housing Price Appreciation . DepreciationJanuary 1987 November 2008
Source: Standard & Poor's
26.6% Price DeclineJune 2006 to October 2008
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15
The Housing Sector | Housing Starts & Permits1/31/1955 - 1/31/2009
Source: Ned Davis Research
(E238)
1/31/2009 = -56.2%
-50
-40
-30-20-10
010
203040
506070
8090
-50
-40
-30-20-10
010
203040
506070
8090
1/31/2009 = -50.5%-50
-40
-30
-20-10
0
10
20
3040
50
60
70
80
90
-50
-40
-30
-20-10
0
10
20
3040
50
60
70
80
90
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Housing Starts (Year-to-Year Change)
Building Permits (Year-to-Year Change)
Shaded areas represent National Bureau ofEconomic Research recessions.
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16
NAHB/Wells Fargo Housing Opportunity IndexQuarterly Data 3/31/1992 - 9/30/2008
Source: Ned Davis Research
(E0238A)
9/30/2008 = 56.1%
NDR estimates from Q2 2002 to Q3 2004
The HOI measures the percentage of homes sold that are affordableto families earning the median income during a specific quarter.
Mean = 58.6%
42
44
46
48
50
52
54
56
58
60
62
64
66
68
42
44
46
48
50
52
54
56
58
60
62
64
66
68
9/30/2008 = 14.1
Affordability Rising
Affordability Falling
-14
-12
-10
-8-6
-4
-2
0
2
4
6
8
10
12
-14
-12
-10
-8-6
-4
-2
0
2
4
6
8
10
12
1
1992
2 3 4 1
1993
2 3 4 1
1994
2 3 4 1
1995
2 3 4 1
1996
2 3 4 1
1997
2 3 4 1
1998
2 3 4 1
1999
2 3 4 1
2000
2 3 4 1
2001
2 3 4 1
2002
2 3 4 1
2003
2 3 4 1
2004
2 3 4 1
2005
2 3 4 1
2006
2 3 4 1
2007
2 3 4 1
2008
2 3
NAHB/Wells Fargo Housing Opportunity Index (Year-to-Year Point Change)
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17
EmploymentJanuary 1986 October 2008
Source: BLS
Black MondayOctober 19, 1987
S&L Crisis1990
Mexican Debt
Crisis | 1995
Russia/ LTCM1998
NASDAQ
Collapse | 2000
0%
2%
4%
6%
8%
10%
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
CivilianUnemploymen
tRate
-2%
-1%
0%
1%
2%
3%
4%
NonfarmP
ayrollEmplo
yment
Civilian Unemployment Rate (left axis)
Nonfarm Payroll Employment (right axis)
Credit Crisis |2007 2008
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18
Unemployment Rates For Industrialized NationsMonthly Data 1/31/1993 - 1/31/2009
Source: Ned Davis Research
(IE100)
Industrialized Nations'Weighted Unemployment Rate
12/31/2008 = 6.8%
Mean = 6.2%
5.45.65.86.06.26.46.6
6.87.0
5.45.65.86.06.26.46.6
6.87.0
United States1/31/2009 = 7.6%
5
6
7
5
6
7
Euro-Zone12/31/2008 = 8.0%
8
9
10
8
9
10
Japan12/31/2008 = 4.4%
3
4
5
3
4
5
United Kingdom1/31/2009 = 3.8%
4
6
8
4
6
8
Canada1/31/2009 = 7.2%
Source: Haver Analytics789
1011
789
1011
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Unemployment Rates For Industrialized Nations
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19
U.S. Real GDP
Source: BEA
-2%
0%
2%
4%
6%
8%
10%
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Perce
ntChangeFromQ
uarterOneYearAgo
-2%
0%
2%
4%
6%
8%
1Q00
2Q00
3Q00
4Q00
1Q01
2Q01
3Q01
4Q01
1Q02
2Q02
3Q02
4Q02
1Q03
2Q03
3Q03
4Q03
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
QuarterlyG
DP(%)
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20
Real GDP Growth Deviation from Trend(Percent Change)
Source: IMF
1980 1985 1990 1995 2000 2005
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
.0
1.5
2.0Advanced economies
Emerging and developing economies
2009 -4.0
-3.5
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21
GDP Growth Well Below Potential | A Great Moderating Inflation Event3/31/1960 - 6/30/2008
Source: Ned Davis Research
Quarterly Data 3/31/1960 - 6/30/2008
(E739)
Consumer Price IndexYear-to-Year Change
6/30/2008 = 5.0%
123456789
101112
1314
123456789
101112
1314
Real GDPYear-to-Year Change
6/30/2008 = 2.2%( )
Non-Farm ProductivityYear-to-Year Change
6/30/2008 = 2.9%( )
-2-10123456
789
-2-10123456
789
GDP Growth Less Productivity Growth
6/30/2008 = -0.7%
Demand in Excess of Productivity
Demand Less Than Productivity-3
-2-1
01
2
34
5
-3
-2-1
01
2
34
5
CPI, GDP Growth and Productivity Growth
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
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22
Equipment & Software Spending vs. Business Lending StandardsQuarterly Data 9/30/1990 - 9/30/2009 (Log Scale)*
(E871)
Equipment & Software Expenditures
Year-to-Year Change
12/31/2008 = -10.9%
Scale Right
( )
-11
-10
-9-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Moved Ahead Two Quarters
9/30/2009 = 64.2%
Inverted Scale Left( )
Correlation Coefficient = 0.75
-24-21-18-15
-12-9-6-30369
121518212427
3033363942454851545760636669
7275788184
3 4 1
1991
2 3 4 1
1992
2 3 4 1
1993
2 3 4 1
1994
2 3 4 1
1995
2 3 4 1
1996
2 3 4 1
1997
2 3 4 1
1998
2 3 4 1
1999
2 3 4 1
2000
2 3 4 1
2001
2 3 4 1
2002
2 3 4 1
2003
2 3 4 1
2004
2 3 4 1
2005
2 3 4 1
2006
2 3 4 1
2007
2 3 4 1
2008
2 3 4 1
2009
2 3
Net % of Banks Tightening
Standards for Large Business Loans
*See important notes.
Source: Ned Davis Research
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24
But Banks are still not Lending
Source: Federal Reserve, Goldman Sachs.
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25
Flight to Quality Intensified in November10-Year Treasuries below 3% / 2 year yields below 1%
Source: Barclays Capital
2-Yr US Treasury Yield (%)
10-Yr US Treasury Yield (%)
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26
Investment Grade Corporates vs. Equity MarketBonds more attractive than equities today
Source: Deutsche Bank; Irrational Exuberance (second edition) (Robert Shiller), S&P.
LT U.S. BBB Spreads
S&P 500 P/E Ratio
Source: Deutsche Bank; Bloomberg, Moodys, NBER, Irrational Exuberance (second edition) (Robert Shiller).
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27
Financial Conditions IndexJanuary 1992 December 2008
12/31/2008
-5.37
10/10/2008
-10.18
10/22/1998
-1.93
1/8/2001
-1.28
10/23/2002
-1.39
(11.0)
(10.0)
(9.0)
(8.0)
(7.0)
(6.0)
(5.0)
(4.0)
(3.0)
(2.0)
(1.0)
0.0
1.0
2.0
3.0
Jan
92
Nov
92
Sep
93
Jul
94
May
95
Mar
96
Jan
97
Nov
97
Sep
98
Jul
99
May
00
Mar
01
Jan
02
Nov
02
Sep
03
Jul
04
May
05
Mar
06
Jan
07
Nov
07
Sep
08
StandardDev
iation
Russian
Financial CrisisDot Bomb
2002 Credit
Crunch
Credit Crisis
Source: The Bloomberg Financial Conditions Index. The index combines yield spreads and indices from the money markets, equity markets, and bond markets into a normalizedindex. The values of this index are z-scores, which represent the # of standard deviations that current financial conditions lie above/below the average from 1992 2008.
Money Market
Ted Spread
Commerical Paper/T-Bill Spread
Libor-OIS Spread
Bloombergs U.S. Financial Cond
Components and Weights
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28
Consensus World GDP Forecasts
Source: IMF, ISI February 2009
2009E -1.8% -3.0% -3.3% 1.5% -2.0 5.0% 6.0% -2.5% 3.0%
Commonfund Estimates:
2.0
%
2.1
% 3.0
%
2.6
%
5.7
%
8.1
%9.3
%
13.0
%
2.7
%
8.3
%
1.1
%
-0.3
%
0.7
%1.0
%
8.0
%
6.2
%7.3
%
9.0
%
1.0
%
6.2
%
-0
.7%
-0.2
%
-1.3
%-0.5
%
3.0
%3.5
%
6.3
%
8.5
%
-0.3
%
5.1
%
-1.6
%
-2.6
%
-2.8
% -2.0
%
1.8
%
-0
.7%
5.1
%
6.7
%
-2.0
%
3.3
%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
U.S. Japan UK Euro area Brazil Russia India China Developed
markets
Emerging
markets
2007
20082009 (Nov Est)
2009 (Jan Est)
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29
What is likely to happen?
Recession
Sluggish consumer spending
Continued government involvement
New regulations and programs
Mortgage package for homeowners
Limited credit
Improved liquidity, starting with high-quality issuers
Rating agencies rethought
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30
Educational EndowmentsHistorical Performance
* Estimated returns
Source: NACUBO Endowment Studies, Commonfund Benchmarks Study | Educational Endowment Reports
Annual
Return
1
2.0
%
9.9
%
5.1
%
2.5
%
10.8
%
1
1.9
%14.6
%
41.3
%
25.5
%
26.9
%
13.9
%
1.3
%
14.1
%
9.6
%
7.2
%
13.1
%
13.3
%
2.9
%
15.5
%
17.2
%20.4
%
18.0
%
11.0
%13.2
%
3.1
%
14.7
%
9.7
%
10
.6%
16.9
%
-0.9
%
-2.2
%
-3.0
%
-6.0
% -2.7
%
-23.0
%
-11.4
%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008*
2009*
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0
20
40
60
80
100
120
140
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
CumulativeValue
(RealDollars)
CPI
HEPI
Origninal Market Value Line
Cumulative Inflation-Adjusted Performance70% S&P 500, 30% Barclays Capital U.S. Aggregate and 5% Spend
Real Value using CPI as the
Deflator
Real Value using HEPI as the
Deflator
Time Period 42 Years
Source: Ibbotson, Bloomberg, Commonfund InstituteThe equity portion of the hypothetical portfolio is based on monthly returns of the S&P 500 Index (12/65-2/08), and the fixed income portion is based on monthly returns of theBarclays Capital U.S. Aggregate Index (01/73-2/08) and the Ibbotson Associates Long Term Corporate Bond Index (12/65-12/72). HEPI data from 07/06 to 2/08 is estimated usingthe Commonfund Institute method based on regression analysis. Returns for this hypothetical portfolio assume that it is rebalanced to 70/30 annually on 1/1/yy and 5% is distributedannually on 1/1/yy.
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Impact on Higher Education
Opera
tions
Cap
ital
State Support
GIFTS
Current Use Gifts
Endowment Income
Other Income
Grants and Contracts
State Support,
Tuition & Fees,
Room & Board
Depreciation
Interest
Supplies & Others
Space and Occupancy
Compensation
and Benefits
Headcount
Pay Scales
Plan DesignCost Sharing
Deferred
DEBT
POLICY
Endowment
AnnualGiving
Campaigns
StateSupport
Financial AidPolicies
Housing
AcademicPrograms
Tuition andFee Rates
Enrollment
ExpensesRevenues
Asset Allocation
SpendingPOLICY
Performance
Facilities
Net Assets
Debt
PPE
Investments New
Renewal
New
Debt
Spending
Fixed/ Variable
Revenue
Expense
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Policy Issues
Asset allocation
Rebalancing
Spending rate/ amount
Spending policy
Gifts
Debt
Opportunities
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Steps To Take | Short Term
Dont panic: stress shortens ones time horizon
Dont sell on short-term news, i.e. dont sell low
Develop a short term financial plan including
Liquidity position
Current and potential shortfalls
Available revenue streams (tuition, endowment draw, gifts, fees, grants, etc)
Credit facilities Assess your liquidity needs and borrowing capacity
Rebalance your portfolio if and when you can (it works)
Dont change your asset allocation unless you have specific awareness of new risks
Adjust your spending to ensure it supports your institutional mission and youroperations
Create contingency plans and assess operations to identify key risks
Communicate with all key constituents
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Steps To Take | Long Term
Develop a long range financial plan integral with your strategic plan
Assess todays revenue needs vs. the maintenance of the purchasing power of yourendowment over the long term
Think long term to take advantage of time-frame arbitrage
Review and revise your Investment Policy Statement
Review specific policies: asset allocation, rebalancing, spending, debt, gifts
Analyze your exposures and reposition your portfolio to take advantage ofopportunities when they appear
Develop a plan to raise funds for endowment from your best donors
Revisit your risk management process and procedures
Analyze your governance model, specifically how you run your endowment and howyou make investment decisions
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06/06/11
APPENDIX
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Source: Financial Times, Bloomberg
August 9: The European CentralBank injects 94.8B into the moneymarkets to shore up confidence inthe financial system. Thisunprecedented level of interventionfollows a statement from BNPParibas, the French bank, that it hasdecided to suspend redemptions onthree investment funds.
July 7: Bear Stearnscloses two hedgefunds after totallosses on subprimebets worth more than$20B.
July 25: Bankers raising$20B for the privateequity buyout ofChrysler Group areforced to postpone thesale of $12B in loans forthe car group.
Jul-07 Aug-07
August 17: TheFed cuts theDiscount Rate,the rate bankscan borrow fromthe Fed, by one-half percent just10 days after theFOMC meeting.
August 16: The ChicagoMercantile Exchange, theworlds largest derivativesexchange, raises marginrequirements for 24 of400+ contracts, includingthose based oncurrencies, interest ratesand stock indices.
Dec-07 Jan-08
January 18: MBIA, the largest bondinsurer, raised $1B in capital tomaintain its Fitch triple-A rating.Fitch strips AMBAC, the secondlargest bond insurer, of its triple-Arating and suggests furtherdowngrades are possible. Four dayslater AMBAC reported a $3.26B loss.
January 22: FOMC cutsthe Federal Funds rate by75bps in an emergencyaction between scheduledmeetings. This was thelargest rate cut since1982.
January 30:FOMC cuts ratesanother 50 bps,for anunprecedentedtotal of 125 basispoints in a nineday span.
Credit Contagion TimelineJuly 2007 January 2008
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Source: Commonfund, BBC Special Report Global Credit Crunch
Credit Contagion TimelineOctober December 2008
October 3: President Bush signsTARP into law.Wells Fargo makes a higher offerfor Wachovia, taking it fromCitigroup
Oct-08 Nov-08 Dec-08
October 8: Central banks inUS, England, China, Canada,Sweden, Switzerland and theEuropean Central Bank cutrates in a coordinated effortto aid world economy.
October 11: The Dow caps itsworst week ever with its highestvolatility day ever recorded in its112 year history. Over the lasteight trading days, the DJIA hasdropped 22%
October 14: The US taps into the$700 billion available from theEmergency EconomicStabilization Act and announcesthe injection of $250 billion ofpublic money into the US bankingsystem.
October 21: The US FederalReserve announces it will spend$540 billion to purchase short-termdebt from money market mutualfunds.
November 12: TreasurySecretary Paulsonabandons plan to buytoxic assets under the$700 billion TARP.
Paulson said theremaining $410 billion inthe fund would be betterspent on recapitalizingfinancial companies
November 25: The US Federal Reservepledges $800 billion more to help revivethe financial system. $600 billion will beused to buy mortgage bonds issued orguaranteed by Fannie Mae, FreddieMac, and Ginnie Mae, and the FederalHome Loan Banks.
December 1: the NationalBureau of EconomicResearch officiallydeclared that the U.S.economy had enteredrecession in December,2007
December 5: Oil fallsbelow $40 per barrel
December 12: BernardMadoff arrested in $50billion Ponzi scheme
December 16: TheFederal Open MarketCommittee decided toestablish a target rangefor the federal funds rateof 0 to 1/4 percent
December 19: USannounces $17.4 billionrescue package for USauto makers
December 29: TheTreasury provides $6billion rescue to GMAC
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Biography
William F. Jarvis, Managing Director, Commonfund Institute, is responsible for the Institutes research, written analysis and clientpublications. A financial services executive and attorney, Bill has worked with J.P. Morgan, where he spent 13 years as an investment bankerin New York and Tokyo; Greenwich Associates, where he advised leading investment management firms and instituted the firms first Japaneseresearch program; and Davis Polk & Wardwell, where he provided legal advice to global banks and securities firms. Prior to joiningCommonfund in 2006, Bill served as Chief Operating Officer of a privately-held hedge fund manager based in New York City. Bill holds a B.A.
in English Literature from Yale University, a J.D. from the Northwestern University School of Law, and an M.B.A. from the J.L. Kellogg GraduateSchool of Management.
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Important Notes
Investment Performance
Unless otherwise noted, any investment performance of funds maintained by Commonfund or its affiliates (Commonfund Group Funds)included in this presentation reflects net total returns. Returns for periods of one year or more are annualized.
It is possible that investors may lose money on investments in any investments in Commonfund Group Funds, or in any investments in stocks,bonds, or other instruments to which this presentation may relate, directly or indirectly. Past performance is not necessarily a guide to futureperformance. Income from investments may fluctuate.
Market Commentary
Market and investment views contained in this presentation, or other market or investment commentary included in the Commonfund Forumprogram, is provided for the private use of Commonfunds investors only. Commonfund is not soliciting any action based upon it, or making anyspecific recommendation to any of its investors. While such information is based on sources that we believe to be reliable, we do not guaranteeits accuracy or completeness. Any opinions expressed are our current opinions as of the date appearing on the material only. Commonfunddisclaims any responsibility to update such information, opinions, or commentary. Commonfund does not accept any liability for any loss arising
from use of the commentary contained in this presentation or communicated during the Commonfund Forum. No part of this material may beredistributed in any form without Commonfunds prior written consent.
Market and investment views of third parties presented in this presentation or during the Commonfund Forum do not necessarily reflect theviews of Commonfund and Commonfund disclaims any responsibility to present its views on the subjects covered in statements by third parties.
No Offering
This presentation is not an offer to sell or a solicitation of an offer to buy securities. The Commonfund Group Funds are offered only by meansof disclosure documents, prospectuses or similar materials made available to investors for consideration at the time of investment. Prospectiveinvestors are encouraged to review these materials with care prior to investing or sending money. Commonfund Group Funds offered bymeans of private placement will be offered only to qualified and eligible investors.
All interests in Commonfund Group Funds are offered through Commonfund Securities, Inc., a member of FINRA.
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Market Outlook Disclaimer
Statements concerning Commonfund Groups views of possible future outcomes in any investment asset class or market, or of possible futureeconomic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of anyCommonfund Group fund. Such statements are also not intended as recommendations by any Commonfund Group entity or employee to therecipient of the presentation. It is Commonfund Groups policy that investment recommendations to investors must be based on the investmentobjectives and risk tolerances of each individual investor. All market outlook and similar statements are based upon information reasonably
available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to beaccurate by Commonfund Group. Commonfund Group disclaims any responsibility to provide the recipient of this presentation with updated orcorrected information.
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Use of this Presentation
This presentation is copyrighted by Commonfund; all rights reserved. While you may copy it for your personal use, you are not permitted topublish, transmit, or otherwise reproduce this presentation, in whole or in part, in any format to any third party without the express writtenconsent of Commonfund. In addition, you are not permitted to alter, obscure, or remove any copyright, trademark or any other notices that areprovided to you in connection with this presentation.
