Moving past sunk costs

There is no point in arguing about sunk costs. Simply put, there is nothing we can do about it now, and bickering about money already spent—I mean, the $42.5 million Duke Kunshan University is expected to cost the University is probably less than Kim Kardashian’s next marriage—is irrelevant. Yeah, yeah, spending money on professors and getting rid of asbestos in Central Campus apartments over winter break would be nice, but what’s done is done.

So there’s no sense in complaining about Kunshan. Sure, five of six buildings isn’t exactly what we signed up for, but DKU is now a sunk cost. It’s safe to assume that the $42.5 million will not be coming back and cannot be recovered.

The cost of DKU should be mitigated by the fact that Duke University’s endowment, contributed to by more than 4,000 individuals’ funds and donations, is now valued at $5.7 billion, according to the most recent reports. This is a significant increase from $4.8 billion at the end of the 2009-2010 fiscal year. The foundation most consistently tied to Duke University, the Duke Endowment, saw its assets increase in value from $2.5 billion to $2.7 billion from Dec. 31, 2009, to Dec. 31, 2010.

If you are confused about the difference between Duke’s endowment and the Duke Endowment, you are not alone. Just know that James B. Duke started the Duke Endowment, which provides for Davidson College, Duke University, Johnson C. Smith University and Furman University, among other institutions. It also sponsors some local initiatives, with a comprehensive breakdown found in their annual report. Despite its multiple commitments, it is important to note the Duke Endowment will fund the $80 million West Union building renovations in its entirety and is a source of a large portion of Duke’s yearly donations.

The successes of Duke’s Endowment and the Duke Endowment help narrow the gapping hole left by the recession. According to The Chronicle, The Duke Endowment “recovered about 80 percent of the losses it sustained in the economic downturn.” The Duke Endowment still hasn’t matched its 2007 level (which was more than $3 billion in assets), but everything seems to be getting back to normal.

The argument against feeling comfortable and spending the money made is that the world is not in the clear economically. The European debt crisis is roaring, and I wouldn’t be surprised if the $5.8 billion endowment has shrunk since its fiscal year ended June 30. With Italian 10-year bonds being the next to hit the 7 percent yield threshold (which led Greece, Portugal and Ireland to seek bailouts) and eurozone officials saying they have no plans to bail out Italy, things may get very interesting very quickly. We’ve already seen economic leaders take over Greece and now Italy, and we will soon find out if austerity measures and new leadership are enough to restore confidence.

But the Duke Endowment’s annual report states that only $48.6 million is invested in international fixed income, meaning there’s a very low chance we are hording Italian debt. Furthermore, the Duke Endowment puts $658.4 million toward hedging strategies, likely there to prevent a 2008 flashback. I don’t know their specific trading strategy or holdings, but I am going to assume that they aren’t stupid. Obviously, a global world means everything would be affected by European debt, but the only way to completely remove risk is to throw the money in a safe. I’m oversimplifying, but there are multiple fail-safes to ensure we don’t see too much red.

Understanding that we’ve successfully regained a majority of our endowment and that our investors are now working with the added intelligence of seeing billions disappear, it’s time to look forward. According to a recent Chronicle story, New Campus is not scheduled to be built until restorations of the West Union building, Baldwin Auditorium and Page Auditorium are complete, meaning the large renovation will not begin until this new crop of freshmen have already graduated. After DKU and these renovations, New Campus should be the next large move Duke makes. A revitalization of Central Campus, New Campus advances academic endeavors, promotes collaborative learning and fosters interdisciplinary research. It is intended to complement East and West campuses and better connect them both physically and programmatically. A rise in the endowment and four years of potential growth means Duke should have the funds to make it happen.