The first few months of Birgitte Nauntofte’s term as newly appointed chair of AU board haven’t exactly been a walk in the park. She took up her position on 1 December and chaired her first board meeting on 7 December –  a meeting she described as a good meeting with a heavy agenda. And ‘heavy’ it certainly was. Among the items on the agenda was approval of Aarhus University’s budget for 2023-26 and the financial report for the first three quarters of 2022. And it’s a depressing read:   

the report states that Aarhus University is projected to exit 2022 with a deep hole in its budget for the year. Not only does the university anticipate a deficit before financial items of about 100 million kroner, caused in part by rising energy costs and shrinking revenues from educational activities. The university had budgeted with a shortfall of 77 million kroner before financial items. The university also anticipates a negative return on financial items of 245 million kroner by the end of the third quarter. However, it’s important to understand that these figures are subject to considerable certainty, due to the turmoil on the capital markets.

“A paradoxical situation”

Nauntofte is open about the strain the university’s finances are under and the gravity of the situation – while at the same time describing the situation as “paradoxical”.

“The university is actually growing, and is doing a good job of attracting external funding, for example. The university has a highly qualified, high-performing staff, and there’s great potential, not least. The university’s finances are under strain due to external factors,” she says, elaborating on the causes:

“It’s partly due to the conditions that society offers us; we still don’t know whether the taximeter increase will continue in 2023, and we still lack clarity on the framework conditions for our science advice activities. And it’s partly due to the fact that we’re living in a uncertain world, where inflation has made it expensive to buy goods and services, and where the war in Ukraine has led to an energy crisis and unrest on the financial markets.”

The lifeline: AU’s financial reserves

Nauntofte goes on to explain that as a public-sector institution, the university is required by law to invest its liquid assets – for example its financial reserves, research grants that haven’t been spent yet and subsidies from the state. These investments are handled on behalf of AU by three external asset management firms.

“We suffered a big loss on these financial items and we’re offsetting it by drawing on our financial reserves. At the board meeting, we discussed the fact that 2023 is shaping up to be just as uncertain as 2022 has turned out to be – and what we’re going to do in coming years if this uncertainty continues.”

And the board has agreed on a strategy, Nauntofte says:

“We’ll operate on a restrained, tight budget and begin rebuilding our financial reserves a bit. But at the same time, we have to continue to focus on growth despite our tight finances.”

At the end of 2021, the university’s financial reserves amounted to 924 million kroner. According to AU guidelines laid down by the board previously, financial reserves must be equivalent to a maximum of 12.5% and a minimum of 7.5% of revenue. The target is 10%. Compensating for the projected budget deficit in 2022 will bring AU’s financial reserves down to about 8% of revenue.

As a consequence of the financial situation, the senior management team has decided to prolong the partial hiring freeze through February 2023. Rector Brian Bech Nielsen has also announced that the university finds itself in “a situation which will require us to prioritise carefully and make difficult decisions in a number of areas in the time to come”.

Irresponsible investment policy?

When I ask her whether the board, which approves the university’s investment policy, bears some of the responsibility for the university’s unusually heavy losses on financial items, Nauntofte’s response is a definite “no”.

“From the board’s perspective, the university has not pursued an irresponsible investment policy,” she asserted.

At its meeting in December 2021, the board approved a change in the university’s investment risk profile that has made possible to increase investments in shares to 40% of its portfolio. At the time, it was expected that this would lead to increased average returns on the university’s investments.

"The changed risk profile has not had an impact on the financial situation, because quite exceptionally the yield on both bonds and shares was hit this year," explained Birgitte Nauntofte, adding that the university’s is expecting a negative yield on its investment portfolio of about 10%. As things stand, the university will probably end up with a loss of about 5%.

However, due to the current unrest on the financial markets, the board has decided to revise the university’s risk profile in a more conservative direction.

When the market turns, we have to follow – and that’s something the deputy director for AU Finance is monitoring very closely,” Nauntofte stresses.  

May be necessary to reopen the budget

As I explained above, there’s a lot of uncertainty about exactly how big the hole in AU’s budget will turn out to be. Because in addition to the unpredictability of the markets, AU is also facing political uncertainty: the university doesn’t yet know whether the country’s politicians will vote to prolong or make permanent the so-called ‘taximeter’ increase in funding for humanities, social sciences, theological and commercial degree programmes that have been underfunded for years.

Just a few weeks before the end of the year, AU still doesn’t know whether the university can count on the subsidy, which amounts to 75 million kroner annually.

“We’re budgeting with the continuation of the taximeter increase, but if that turns out not to be the case, it will be necessary to reopen the budget,” Nauntofte explains. And that would be a highly unusual situation, she stresses.

However, Nauntofte hopes that the country’s politicians understand the seriousness of the situation, which affects higher education in Denmark as a whole, not Aarhus University alone.

“We’ll get through this!”

Despite a budget shortfall of several hundred million kroner, Nauntofte is optimistic about AU’s prospects when she looks past 2023 into the future.

“AU is well-run and has great potential, and that’s important. We’re under pressure from external factors, and I hope that external pressure will ease in 2023. It’s important for me to say to the university’s students and staff that we’ll get through this! We can’t look on the dark side, we have to look to the future.”

New government has announced reforms

Around the time Nauntofte joined the board, a new three-party majority government coalition was formed; the new government recently released a 63-page platform that includes plans for a number of reforms of the Danish educational system. Nauntofte is particularly concerned about the government’s intentions to cut up to half of currently offered two-year Master’s down programmes down to one-year programmes.

“At the universities, we’re critical of measures that lower the quality of our degree programmes by cutting the Master’s degree programmes in half. We believe strongly that two-year programmes are necessary in order to ensure students have the time they need to immerse themselves in their subject and master it. But we will have to engage our politicians in dialogue about just what it is they have in mind. And they will have to demonstrate their trust by involving us in this decision, because what they’re proposing is a very, very dramatic change in the conditions governing the university. If this is what is required of us, we will have to be sure that it benefits our students – as well as industry and other stakeholders both nationally and internationally who will be hiring these graduates,” she says.

Research-based education is our hallmark

I asked the new board chair to share what she believes to be essential when it comes to the quality of the university’s degree programmes in a situation characterised by tight finances and political reforms of higher education.

“Our hallmark is research-based education,” Nauntofte answers promptly.  

“It’s crucial that students receive an education that’s based on the latest knowledge and scientific advances. One of the main pillars of Aarhus University’s degree programmes is that many good lecturers are also highly qualified active researchers. This costs money – but it’s what gives the university’s degree programmes quality.”

“Next, it’s important to acknowledge and respect that you can’t accelerate a learning process. Students must be given enough time to really assimilate what they’re taught. It takes time to understand things in depth and really absorb your subject. It also takes good educational environments and dialogue with employers, and my impression is that we have good educational environments and constructive dialogue at AU. At the end of the day, it’s about students being able to realize their dreams – and making sure society’s need for knowledge is met.”

The new board chair is fully aware that the focus in coming years will be on getting the university through the current financial challenges and implementing the current university strategy. After that, she’s really looking forward to contributing to shape the university’s upcoming 2030 strategy, she says.

“But for now, I’d like to focus on the university’s potential – and on how we succeed in communicating that potential and our achievements to the surrounding society,” she concludes.