Perhaps you’ve heard the one about Harvard University? That now it’s basically a hedge fund, but with a school attached?
That quip is becoming more applicable to some universities in Canada too. And with the volatility of the financial markets, this is creating problems for the current generation of students, staff, professors, and early-career academics.
Here is one example. At the University of Ottawa where I teach part-time, the president announced last year that the school had lost $72 million in the market value of its investments due to a “dramatic decline in financial markets.” In response, the university “reduced academic and administrative unit budgets by 3.5 per cent ” for the upcoming year. Graduate students saw huge reductions in what they could earn as teaching assistants, professors were left with more marking, and this doesn’t begin to tally the o
ther costs—among staff and among the undergraduates—that also resulted from these budget cuts.
$72 million is a lot of money, but keep in mind that the actual deficit at uOttawa last year was just $3.6 million. When compared to $1.34 billion in total revenues earned from the school’s core work, $3.6 million represents a deficiency of less than one percent. Put another way, the revenue we generated at uOttawa—as professors, staff, and students—covered 99.7 per cent of the expenses that the institution incurred. In the nonprofit world, that’s close to a balanced budget.
We need to remember that the $72 million that the president mentioned was a paper loss. It reflects the ups and downs of the financial markets, and their volatility is now magnified by the size of the institution’s portfolio (Figure 1). UOttawa’s investment portfolio held $1.16 billion in April 2023, composed of bonds (“fixed income”), stocks (“equities”), off-campus real estate, and other assets.
The money in uOttawa’s portfolio has been accumulating for decades. The problem is that it is not based entirely on donations and investment income anymore. They account for all of the ‘endowment’ (valued at $334 million, included in the tallies in Figure 1), but donations and investment income only account for part of the other $829 million in the university’s investment portfolio. Presumably the remainder includes some from the university’s basic operations—capital drawn from the surplus, what it clears from tuition, research grants, and services—the extra money left-over after the expenses were paid—which has been re-directed into these investment funds.
To generate that surplus, to make extra cash that can be ‘invested’ in the markets, the school’s executives have been cutting expenses that otherwise could have been invested in our students and in the university’s workforce.
Part-time faculty
One way that university executives cut expenses is by replacing full-time professors who are retiring with lower-paid part-time professors, an increasingly common practice. Across Ontario the number of full-time professors has increased very slowly since 2008. At uOttawa, the number of full-time professors was actually flat from 2008 to 2022, (around 1,250 people), and only started growing again in this last year.
Historical data on the number of part-time professors is hard to find, but one indicator points to rapid increases: the proportion of the total expenses that uOttawa used to pay its part-time professors was only 1.7 per cent in 2002. By 2022, it had climbed to 4.1 per cent. This increase is not because we are now much better paid. It is because, even in proportion to higher student enrollments, there are many more part-time professors at uOttawa.
How much work has been turned over to part-time professors? That data is also hard to find. The ideal indicator would track the number of individual student credit hours that are taught by full-time professors vs part-time professors.. In practice, one can count the course-sections that are delivered by members of the two groups: full-time vs part-time.
This is something I have monitored since 2019. I focused on lecture-based courses and did not include seminars, labs, tutorials, or field-courses. Data limitations prevented me from including the Faculty of Education as well as part-time professors on long-term contracts. Some results are in the following table.
Consider some details first. As is generally the case across Canada, departments in the Arts are relying more on part-time faculty. Full-time faculty are not being replaced, or at best, not very often. The ‘social’ disciplines (social sciences, law, management, health) rely more on part-time faculty than fields based on the natural sciences (e.g. engineering, medicine).
The most important point is that uOttawa’s part-time professors teach over 40 per cent of its undergraduate lecture-based course sections. If those on long-term contracts were included, it would likely be in the neighbourhood of 50 per cent.
So, well over 40 per cent of the lectures are delivered by part-time faculty, but according to COFO (Council of Ontario Finance Officers) data, salaries for part-time faculty at uOttawa accounted for 4.1 per cent of the total expenses in the 2021/2022 academic year. The full-time professor salaries, on the other hand, account for 18 per cent of all expenses.
This is one way to save money, and money saved can then be ‘invested’ in stock markets.
But consider the costs. Part-time faculty are not fully integrated into the university community, and they are provided with few (if any) research funds and conference attendance fees. They may be far less familiar with the services that are available on campus for students; this is another way that students can end up short-changed. If they are teaching more than one course per semester (many do), there is little job security, because budget cuts can wipe out sections that part-time faculty are last-in-line to teach.
Most importantly (and I say this as a part-time professor who will soon retire from teaching), part-time faculty positions in their current form offer little hope to scholars in the early stages of their careers. Our most promising students see bleak prospects for the academic profession. This is made worse by ‘investment’ strategies that leave our universities exposed to the ups and downs of stock markets. These institutions are supposed to be investments for the future, but the financial markets offer little security.
Still, it is to these same markets that many universities have turned to generate more income in the future, and a considerable portion of the money invested in those markets no doubt comes from “spending less now”—short-changing current generations of students—in order to “save for the future.”
Investment strategies
One might claim that most universities have few investments beyond their endowments. But uOttawa is in good company. Just consider three peer institutions: York University (in Toronto), Queen’s University (in Kingston), and Western University (in London, Ontario). They are all similar in size and, like uOttawa, the latter two have medical schools as well. All four have built up their portfolios well beyond the size of their donation-based endowments over the last 12 years.
Figure 2 shows what this looks like. Compared to uOttawa, Queen’s and Western both have portfoilios now worth well over $2 billion. Their permanent, donor-based endowments are in green and other funds are in purple. The totals include both short-term and long-term investments. But the long-term investments constitute the largest portions, and they are subject to the most volatility in the market-value.
You might think, based on Figure 2, that Western was better at choosing its investments, but this is not necessarily true. Using some math called “Internal Rates of Return,” the average annual yield on Ottawa’s long-term investments seems to have been about 6.3 per cent over these 12 years. For Western’s portfolio, the average yield looks like 5.4 per cent per year. At uOttawa, around 60 per cent of the increase over those 12 years came from financial market returns—including that ugly year in 2022 that the university’s president mentioned. For Western, financial returns accounted for only 50 per cent of their increase over the same years. Donations make up part of the difference: Western received almost half a billion over the period, while the other three universities received substantially less.
How likely is it that the remainder—a considerable part of the other 50 per cent—came from cutting expenses and plowing the surplus revenues into the investments? I think the evidence is strong. Western, for instance, borrowed capital from its own workforce by letting its liabilities for employee future benefits climb by $100 million over the period. This provided some money that its executives could direct into the school’s investment portfolio. Western also borrowed money from bond-market investors ($100 million in 2017), which cash-flow statements suggest was used to buy more financial securities, not to build or renovate campus infrastructure. Queen’s, York, and uOttawa have done this too.
In other words, a number of universities in Canada are using leveraged investment strategies: borrowing money at low interest rates in bond markets so as to increase the size of their investment portfolios, while cutting many expenses at the same time. It’s the “spend less now, save for the future” mantra.
Still, consider just one line on uOttawa’s list of expenses: the $51.4 million that the school spent on the salaries of its part-time faculty. That one line, which made use of 4.1 per cent of the university’s total budget, paid for the delivery of well over 40 per cent of the undergraduate lectures on campus. Comparatively, the total that the uOttawa has left in the hands of some hedge funds was virtually the same amount (see Figure 1).
When cutting expenses in order to build a university’s financial portfolio, it would help to remember that these funds, held in reserve, are a gamble on decent market returns. Nowadays, these gambles look quite risky. Instead, that money could be ‘invested’ in younger adults, and in part it could be used to create more stable jobs, and more of them, for our early-career academics—more promising jobs that involve teaching, paid research, allocations for public service, better integration into the university community, and good possibilities for advancement. Doing so would help build a more socially sustainable future.
