The financial turmoil that originated in the United States last fall jolted educational institutions here across the Pacific, shaking the financial health of some universities and dashing the dreams of any number of parents.
In July, Keio University decided to postpone the opening of a new elementary and junior high school in Yokohama, to the dismay of parents who wished to enroll their children.
Enrollment in the affiliate school, slated to open in April 2011, was seen as a path for children into the prestigious university free from tough entrance examinations.
For the private university based in Tokyo, the addition of a new affiliate school was a key project to commemorate the 150th anniversary of its founding in 1858. No new schedule has been set.
Keio was forced to halt the commemorative project after its investment portfolio--like that of many other private universities--was hit hard by the financial crisis.
Keio President Atsushi Seike said when he assumed the top post in May that he would "review all projects." The commemorative project was no exception.
As most major private universities released their financial data for the fiscal year that ended March 31, it was clear they were weighed down by heavy investment losses.
They are not just reviewing their means of asset management but curtailing or postponing projects, or dropping them altogether.
According to Keio's financial report, it suffered latent losses in stocks and other securities totaling 53.5 billion yen as of the end of fiscal 2008; of the total, it wrote off 16.9 billion yen as losses.
Its consumption statement of revenue and expenditure, which shows a school entity's financial conditions in a single year, showed a deficit of 26.9 billion yen for the fiscal year.
Latent losses not written off came to 36.5 billion yen, including 22.8 billion yen from investment trusts and 3.6 billion yen from derivatives. The total was up sharply from 22.5 billion yen at the end of fiscal 2007.
Criticism of such asset management has been smoldering within Keio.
Masahiko Shimizu, a vice president who took charge of financial affairs and accounting in late May, said the school will change its means of asset management.
"We must seriously reflect on our failure to cope with the (market) moves last year," Shimizu said.
"We will review our portfolio and management regulations in the direction of reducing the ratio of high-risk financial products."
Sophia University in Tokyo similarly reported latent losses of 11.8 billion yen, of which it wrote off 8 billion yen as appraisal losses. Its fiscal 2008 deficit was 8.4 billion yen, bringing the accumulated deficit to 9.4 billion yen.
Komazawa University's debacle in derivatives trading, which made headlines late last year by incurring 15.4 billion yen in losses, underlines the extent of the blow from the financial crisis.
Having other investment losses as well, the Buddhist university in Tokyo wrote off appraisal losses totaling 6.5 billion yen and reported a deficit of 22.9 billion yen for fiscal 2008.
Its accumulated deficit came to 31.1 billion yen.
The balance sheet showed the school's assets fell by 7.6 billion yen from a year ago, while debts rose by 12.2 billion yen as a result of borrowing to help cover the losses.
Its net assets, or assets minus debts, came to 51.9 billion yen, a drop of 19.9 billion yen from the previous year.
According to Komazawa's internal documents, it refinanced 12.4 billion yen in loans for longer terms. Of the total, 7 billion yen was extended by Mizuho Bank, with the repayment dates set for 2015 to 2018. Its outstanding debt was 19.8 billion yen as of the end of March.
"It will likely face considerable funding difficulties given the burden of repayment each year," said an investment advisory analyst.
"Unless it takes drastic reform measures, such as selling assets, it may be difficult to rebuild school facilities or carry out new projects," the analyst said.
Seijiro Kobayashi, the university's general affairs chief, acknowledges the management difficulties it faces.
"We are studying how we will repay (the debts)," he said. "First, we will curtail costs."
An investigative panel compiled a report on what went wrong late last year. The university dismissed its chief director, and also made other officials in charge of accounting resign.
Its new president has pledged a re-examination of the problems; a new report by an external panel is due soon.
Many other private universities reported latent losses in the fiscal year.
Kenji Uno, chief senior analyst at the Daiwa Institute of Research's public policy research department, says those schools should have been more cautious.
"Even at a regional bank, 20 to 30 people are engaged in asset management activities, but private universities assign only several people, who have other duties as well," Uno said.
"Despite that, they expect high returns.
"Asset management by private universities, whose funds come from tuition and subsidies, must be done on a steady basis as a basic rule."
The education ministry in January sent notices to all educational corporations calling for caution in the management of their assets.
The ministry also called on them to draw up internal rules on types of financial products and ceilings for investment as well as a system to keep tabs on their portfolio conditions.
Public accountants and other experts also point to the need for university entities to have better information disclosure about their financial conditions.
An education ministry survey last fall found only 72 percent of the entities release business reports separately from their financial results.
Keio and a small number of other universities make public the types of securities they hold, but they are exceptions.
According to the Japanese Institute of Certified Public Accountants, a survey of the fiscal 2006 business reports released by 296 entities showed 46 percent stopped short of reporting details of their financial results.
In February, the institute released a model for university business reports to encourage education entities to have better disclosure.
The model gives a wide range of examples of detailed reports, from market values of securities and debts to yearly changes of accounting ratios, which show the entities' financial strength.
"University corporations, which are of a highly public nature, must fulfill accountability to the society," said Keiko Sano, an executive board member of the institute.
"They should pursue better information disclosure by, for example, setting unified standards (for financial reports)," she said।(IHT/Asahi: September 2,2009)
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