When Al Horvath moved back East to join Columbia University as its executive vice president for finance in October 2004, he brought more with him than just California sunshine. He came with a determination to move the Unviersity's financial processes more in line with the best practices of other large research universities and a desire to assemble a stellar interdisciplinary team of financial experts. Last week, The Record spoke with Horvath, who shared a bit of his philosophy and vision for Columbia and his progress to date.
RECORD: What attracted you to Columbia?
HORVATH: Although I was in a great situation at another great institution [Caltech], the opportunity to move to a place with as rich a history and reputation as Columbia was too hard to resist. I was attracted to Columbia's complexity. I was impressed with the people I met during the interview process, especially those with whom I would have the chance to work, and by the interesting challenges that would be on my plate. My wife and I also were both excited to return to New York -- I had spent a little more than five years at NYU through January 2000. Even with all of the California sunshine, we never did get New York City out of our systems.
RECORD: What were some of the first challenges you tackled?
HORVATH: Let me preface my answer by saying how fortunate I am to be inheriting this responsibility at a time when Columbia is in such a strong financial position, with a credit rating of AAA, the best there is. Given this fiscal strength, the overriding challenge will be to use our resources as wisely as possible so that they continue to grow even as we take advantage of the investment opportunities available to increase the University's academic and research excellence.
With this goal in mind, one of my first tasks was to expand our department's mix of skills. Financial officers traditionally are thought of as realists -- those who point out the bottom line in conversations about future directions. In today's world, we also must be prepared to contribute solutions in discussions of how to meet University goals. President Bollinger has set an ambitious and energizing vision for Columbia, and we want to help realize it.
Finally, I want to begin to bring Columbia's accounting methods and systems more in line with the best financial reporting practices of major research universities. This must be done cautiously and incrementally, but in the end, we will have created a system with greater transparency and "readability."
RECORD: In putting together your team, what did you look for?
HORVATH: Our team is made up of wonderful people who came to us from within the University and from both the private sector and nonprofit world outside our walls. They share a passion for leadership, an understanding of service, unshakable integrity and a willingness to have some fun.
Our new controller, Cheryl Ross, came to us from the Mayo Foundation and has prior experience as a member of the faculty at Lake Forest College in Illinois. Pat Scipio, our new internal audit director, has an extensive and diverse background in auditing and has been involved in several leadership positions with the international audit professional organization. Gail Hoffman, although not new to the University, has moved from Student Services into her new role as treasurer, bringing a passion for service and a long career in financial services along with her. Scott Norum, a long-time veteran of Columbia and the vice president for management and budget, has provided both institutional history and a deep understanding of how all of this works.
And of course, there are many others. I am extremely excited about the group that is forming and the speed with which we are creating a positive momentum for effecting change and improving our office's contribution to the health of the University.
RECORD: What accounting changes, if any, have you already made and why?
HORVATH: One major decision we made was to change our method of valuing institutional real estate assets in reporting the annual endowment rate of return. In the past, our residential real estate assets were valued in terms of their current market value. Starting this year, we changed the basis of this value to reflect the depreciated historical cost of our residential real estate assets. Why this change? Simple, but important: The change brings us more in line with current accounting practices; and, more importantly, it better aligns our reporting practices with the purpose and use of the resources being reported.
Let me explain. The institutional real estate holdings we include in our endowment calculations are used primarily in support of our academic mission. We do not treat them as assets to buy and sell as investment vehicles. Thus, their "market value" is of little use to us. They are long-term holdings that we intend to keep -- graduate student housing and faculty apartments, for instance -- and the value we now assign them reflects that use.
RECORD: What does this change mean for computing Columbia's endowment performance?
HORVATH: The change only affects the way we account for one component of our endowment. It also has no impact on the properties themselves, our financial health or our endowment's support for current operations.
However, I think it is important to clear up the momentary confusion about the actual endowment performance reported for this past year. Our financial report records what appears to be a 3.5 percent rate of growth in our endowment, when in actuality, we grew at a more much robust rate -- 10.6 percent. Moreover, the managed assets component of Columbia's endowment (our investment portfolio), by far and away the largest component, had a 16.9 percent rate of return this past year.
The 3.5 percent rate reported on our balance sheets is the result of comparing the endowment figures from 2004 with those from 2003 without taking into account the change this year in how we value the institutional real estate. In other words, in 2003, the reported institutional real estate assets reflected their "estimated fair market value." However, in 2004, those same real estate assets reflected their depreciated historical cost. There was a significant discussion of this in our annual report because of the confusion that a change like this can cause. We noted in our annual report that comparing assets that have been valued using different accounting methods distorts the "true" rate of return.
This confusion surrounding our reported endowment rate of return will disappear next year and in subsequent years, when comparisons will be made among entries that reflect the same common denominators.
RECORD: What expectations do you have for Columbia's financial future?
HORVATH: Columbia is financially strong. The broader question in the future is whether our resource base can support the kinds of ambitions that we have. Research in basic sciences and medicine is a very expensive enterprise. To remain relevant, we need to invest in our infrastructure for those activities. Financial aid is a key issue for our students. We need to ensure that there are sufficient resources to continue our ability to attract the very best students. Space is a premium and it can limit our ambitions. These are just a sampling of the investments that the University will be pushed to make over the coming years. As we prioritize and move forward, we will need to ensure that we maintain our strong financial foundation and engage in these activities in a responsible manner. Our challenge is balancing long- and short-term needs and goals.
RECORD: On top of your administrative duties, do you plan to teach?
HORVATH: I'd love to get back into the classroom at some point. I'm fortunate to work in higher education, and I think that teaching is a great way to be connected to one of the core activities of a place like Columbia. For the near term, however, I think my dance card is pretty full.
RECORD: Can you share with us any plans for the near future at Columbia?
HORVATH: Like many institutions that have been around for a long time, we have a set of financial systems that, while serving us well up until now, are limiting some of the ways in which we want to do business. So one of the major initiatives on the horizon will be a replacement of those systems. That will be a very large undertaking, and we intend to do that carefully and with the key input of financial managers both on the Morningside and Medical Center campuses.
On a more practical level, I really want to improve our internal reimbursement processes for things like business travel. Simple transactions should really be simple and reliable.
RECORD: Any final thoughts?
HORVATH: After being here only a few months, it's clear to me that Columbia is a special place. Although it's a large organization within a large city, the welcome that I've received has been incredibly warm. There's a real dedication among members of the Columbia community to make a positive difference. I'm very happy to be a part of this community and look forward to contributing to the University's ongoing success.