Universities adapting to uncertain economic future

Australia's universities are facing an uncertain economic future, but they're rising to the challenge of adapting to change in the industry, an expert says. Mathew Simpson, head of corporate markets and distribution - managed portfolios at FIIG Securities, addressed finance executives from Australia's leading universities at the Higher Ed Services conference on the topic recently. In an increasingly competitive international market, and with federal government budget cuts looming, universities are facing increased pressure to adopt new strategies and prepare for the future, Simpson said. And it's a future he hopes he will be able to help them navigate successfully. "I think it's very well documented that the higher education sector is experiencing financial pressure," he said. "The challenge for educational institutions is that capital base is stressed, which means there may be cuts, and we've got to look at what alternatives are available. "We aim to help universities navigate into solutions that are relatively low risk, and help broaden their scope in terms of who they invest their cash with. "Universities are now beginning to change the way they invest, and this evolution is happening very quickly." Simpson said higher education providers were in the midst of facing a number of economic pressures, from uncertain funding sources to staying competitive internationally and maximising returns in a low interest rate market. As these institutions continue to prioritise capital protection, liquidity and conservative investment policies, many have been forced to compromise on yield and investment growth. “The unique nature of university funding sources and cash flow seasonality, coupled with a sustained historically low interest rate environment is triggering many universities to re-think their capital management processes,” Simpson said. “Today, universities with funds in term deposits are receiving one per cent less than five years ago, and over five per cent less than 10 years ago. That alone indicates the need for treasury teams to look at new options that will work harder to increase returns and get better outcomes for their money, while not sacrificing adherence to rightly conservative investment policies. “Many higher education institutions have their funds sitting in a small subset of available investment opportunities due to strict investment policies and the perceived risks with alternative options. However, many are starting to look at the opportunities associated with engaging a wider competitive universe of issuers and security types. “There has been a move to broaden the skill base of university finance and treasury teams in recent years, building-out investment expertise in order to address the headwinds being faced by the sector. We seek to work with these teams, and their advisors, to provide better and broader access to conservative, yet materially higher yielding Cash and Fixed Income investment solutions.” Simpson also hopes to introduce more universities to the option of Bank Bond programs to be more financially viable, but said that overall there's a positive attitude towards adapting and changing with the times. "There's an onus on the institutions to better manage their capital bases, and we see universities reacting very positively to the competitive landscape," he said. "I think they acknowledge the possibility of cuts and see that's life - we have a deficit that needs to be filled and all industries will have to take part in this. "They are increasingly looking at cost effectiveness to improve their operations and there's definitely an increase in economic sophistication, which I think is great to see." FIIG offers a range of cash and fixed income investment solutions, delivered either bilaterally or via customised managed income portfolios, that allow clients access to a wide range of money market and fixed income products, professional management, reporting and governance services. “Engaging a reputable third-party can significantly reduce the facilitation and management burden of investments for a university’s finance team - driving operational efficiencies, cost savings and delivering improved governance and investment returns,” Simpson said. “It is obvious, from discussions at the conference and given our direct dealings, that the sector has an appetite for improved operational efficiencies, procurement cost savings, and investment yields. Sustaining the $22 billion higher education sector, as Australia’s third largest export industry, is a complex proposition - particularly given the backdrop of an evolving regulatory and competitive environment. Low interest rates press the need for innovative solutions, though not at the expense of conservatism. These solutions do exist and we look forward to assisting the sector to navigate its way to them.”