The Principal's economic update
Over the past few months, many of Canada's global trading partners have experienced economic difficulties and disruptions to their financial institutions. The unprecedented volatility in equity markets is impacting university endowments around the world, at the same time as financial turmoil is causing apprehension about the ability of some institutions to weather the storm. In recent weeks a number of students, faculty, staff and alumni have asked me how these events will affect McGill and I have prepared this letter in response.
In reviewing the current situation, two key factors come immediately to mind: First, although we will continue to monitor the situation, it appears that our university and Canadian institutions more broadly appear to be relatively well-positioned to face these global financial challenges. Second, it is important to emphasize that no organization, including our own, is fully immune to the negative consequences of this climate.
There is a significant probability of a global recession, although its extent, duration and impact are difficult to predict, particularly in Canada, where our financial institutions are well capitalized and our governments have strong fiscal capacity.
McGill's operating funds come from a combination of provincial funding, tuition, provincial and federal research grants, research contracts and grants, investment income and donations. We have and continue to be successful at attracting competitive research grants and infrastructure investments from the federal and provincial governments, and in 2007-08 our alumni and friends helped us set a McGill fundraising record – our first year in which gifts and pledges exceeded $100 million. Further, over the past few months, even as concerns about the economy increased, we received a number of large gifts, and continued to increase the breadth of our donor base.
It is also worth noting that although our conservative endowment investment practices may have lowered our returns in recent years of high economic growth, they have also meant that our endowment losses, while significant, have been lower than some other institutions in the face of broad market declines. We are fortunate that our endowment currently has sufficient stability to maintain support for our students and faculty, within a long-term strategy of capital growth.
Let me emphasize, however, that we are not taking a “business as usual” attitude in this time of unprecedented financial volatility. We have always believed that maximizing operating efficiency and enhancing the quality of teaching and research are not mutually exclusive, but rather, are essential components in the fulfillment of our institutional mission.
We have never shied away from taking tough decisions when necessary, and we will continue to be strategic in our decision-making. We continue to look for ways to streamline our operations and reduce duplication. Our “cut the red tape” contest, in which we asked members of the McGill community to identify policies or processes that have no sound justification and impair service to students, is just one example.
We have a record of prudent financial management. We will continue to count on our ability to attract strong support from public and private sources, and the on-going commitment of the provincial and federal governments to higher education and research. These are all key assets as the world faces a time of growing economic uncertainty. The current situation dictates caution in undertaking expenditures and in monitoring our investments, and we are confident that this approach will enable us to continue focusing our efforts on our primary mission of teaching and research while developing the talents of our extraordinary students, faculty, and staff.
Principal and Vice-Chancellor