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S.&P. Cuts European Union’s Credit Rating

The agency removed the bloc’s top-level AAA long-term credit rating, lowering it one level to AA+, citing “the overall weaker creditworthiness of the E.U.’s 28 member states.”

On Friday afternoon, S.&P. issued a clarification, emphasizing that the downgrade applied only to the European Union’s borrowing as a supranational body and that the move had no effect on individual member states.

The timing of the announcement was inauspicious, coming on the last day of a meeting of European Union officials and heads of state, whose capstone achievement was an agreement for the creation of a European system for winding down failed banks. That plan, despite limits that critics have been quick to point out, was supposed to demonstrate the bloc’s commitment to building a banking union, locking member states into an ever-tighter economic embrace.

S.&P. was apparently unconvinced. “We believe the financial profile of the E.U. has deteriorated, and that cohesion among E.U. members has lessened,” it said in explaining the downgrade. The firm also pointed to disputes over the European Union’s budget and to Britain’s plan for a referendum on remaining in the European Union as signs that solidarity was under strain.

The European Union’s borrowings of 56 billion euros, or $76 billion, are separate from those of member states and from finance programs like the European Financial Stabilization Mechanism and the European Atomic Energy Community. The ratings agency said 80 percent of the borrowing was currently extended to Portugal and Ireland, a legacy of the sovereign bailouts.

The European Commission, the executive arm of the union, took umbrage. “The commission disagrees with S.&P. that member states’ obligations to the budget in a stress scenario are questionable,” Olli Rehn, the commissioner for economic and monetary affairs, said in a statement. “All member states have always, and also throughout the financial crisis, provided their expected contributions to the budget in full and in time.”

S.&P. denied any link between the downgrade and the announcement of the banking resolution deal. Rather, it said it was a result of the falling credit scores of member states since it first put the bloc’s rating on review at the beginning of 2012 and delays and debate over the European Union’s budget.

Christian Schulz, an economist at Berenberg Bank in London, wrote in a note that the ratings downgrade “is largely symbolic as the E.U., at least in the grand scheme of things, does not borrow much.”

Investors, for their part, chastened by the ratings agencies’ blessing of financial dross during the credit bubble, have ignored many S.&P. decisions in recent years, and there was no market impact on Friday.

Union's Claims Over SEPTA, Port Authority Work Survive

Allegations from an electrical workers' union that a contractor that used its members to fulfill contracts with SEPTA and the Delaware River Port Authority wrongly classified the workers in violation of the False Claims Act has survived a motion to dismiss.

Common Sense: How Cooper Union’s Endowment Failed in Its Mission

So why does Cooper Union now find itself forced to charge tuition of an estimated $20,000 a year, abandoning what many consider its most important legacy?

This week, angry students were occupying the president’s office in protest. They might be even angrier to learn that some of their future tuition dollars could be going to support wealthy hedge fund managers who oversee some of the school’s $666.7 million endowment.

Cooper Union may be an extreme example, but it’s hardly the only college suffering from a combination of decades of bad decisions and recent treacherous markets. Its endowment was typical of the many endowments and pension funds that took the plunge into so-called alternative investments like hedge funds, which have lured investors with the promise of generous and steady returns in both good times and bad. And compared with many universities, Cooper Union did a good job managing its endowment through the recent financial crisis. As recently as 2009, the school maintains, it ranked first among all American universities for endowment performance.

Even so, hedge funds couldn’t solve the college’s dire financial problems, and many hedge funds have been far more successful at lining the pockets of their managers than beating market averages. (The typical hedge fund manager charges a fee of 2 percent of assets plus 20 percent of any gains.) In fiscal year 2009, which ended June 30, 2009, Cooper Union’s hedge funds and other managed assets lost 14 percent, and the returns since then have lagged the stock market’s recovery. Today, Cooper Union’s endowment is lower than it was at the end of fiscal year 2008, even as the Standard & Poor’s 500-stock index has hit new highs. From 2009 to 2012, a simple, low-fee mix of 60 percent stocks and 40 percent bonds far outperformed hedge fund indexes.

Weak hedge fund performance is hardly Cooper Union’s only financial problem. Today’s crisis has been brewing for decades if not longer, and comes after years of what looks like bad management decisions with little accountability or supervision by New York’s attorney general, who oversees nonprofit institutions. Over the decades, Cooper Union has sold off assets piecemeal, failed to diversify its endowment, taken on debt and built a lavish new building. After the 2000-1 stock market plunge, the managed endowment, excluding the Chrysler Building, lost half its value. The school never cultivated its potential donor base, leaving most graduates with the impression that it was wealthy and didn’t need alumni contributions.

In some ways, it’s surprising that the school’s trustees managed to stave off charging tuition as long as they did. “We’ve only been one step ahead of the bailiff for decades,” said John C. Michaelson, a trustee who runs an investment firm and has been chairman of the investment committee since 2012, as well as from 2005 to 2008. “We were pulling rabbits out of hats.”

The simplest rule of asset management, one familiar to even novice investors, is diversification. Yet Cooper Union’s endowment is highly unusual in that it’s concentrated in a single asset — the land under the Chrysler Building — which accounts for nearly 84 percent of its assets, according to its most recent financial statement.

By contrast, Emory University in Atlanta, which as recently as 2001 had 60 percent of its main endowment in Coca-Cola stock, has since sold all of it and diversified into other assets.

Having so much of the endowment in a single asset “is against everything I stand for,” Mr. Michaelson said. He and other trustees said they considered selling it in 2006, when the college was facing mounting financial deficits, but concluded that would be impractical. Cooper Union receives annual lease payments of $9 million from the owner of the Chrysler Building, Tishman Speyer Properties, and $18.2 million in so-called tax equivalency payments that would otherwise go to New York City. The right to the tax revenue couldn’t be transferred to a buyer.