Endowment returns 29 percent, 36th in ranking

Primarily due to high returns on its private equity funds, Williams College, for the year ending June 30, 1999, earned one of the highest returns from its endowment of any college in the nation. Excluding gifts and investment of retained earnings, Williams earned a return of 29 percent on its endowment last year, placing it well ahead of competitors and increasing the Williams endowment overall to over $923 million from $724 million the year before.

By comparison, in fiscal 1999 (measured each June) the average return from college and university endowments was 11 percent, down from 18 percent the year before.

The decrease in returns is primarily attributed to a market decline during the summer of 1998 (when fiscal year 1999 began) as well as declines in such blue-chip stocks as Coca-Cola.

Among Williams’s competitors, Amherst had a 1999 return of 17.5 percent, Swarthmore 8.5 percent, Duke 23.4 percent, Harvard 9.5 percent and Wesleyan 9.4 percent. The Williams endowment is now the 36th highest among all institutions of higher education, and second to Grinnell College among private liberal arts colleges.

Williams has approximately $500,000 in endowment per student, ranking eight-highest among 39 peer institutions.

Treasurer of the College Douglas Phillips attributes the College’s investment success to its limited partnerships in private equity funds, most notably venture capital and buyout funds.

Williams has limited partnerships in over 50 different venture capital and private equity funds. These partnerships can, for example, enable the College to own equity in companies before their initial public offering.

These private equity funds, Phillips notes, both provide capital and management advice as well. Williams stands to make a substantial return if the company’s stock increases in value after going public.

Before going public, Williams owned stock in Amazon.com, Cisco Systems, Lexmark, Netscape, Lycos, Juniper Networks and VA Linux (at the time thought to be the most successful IPO ever).

In addition to its success in private equity funds, Williams benefited from the continued “bull market” and the diversity of the College’s portfolio, which includes stock in over 350 companies and bonds in over 170, including U.S. Treasury securities.

The College’s Board of Trustees, through its Finance Committee, is responsible for the management of the endowment.

The Committee identifies target rates of return as well as allocation of assets, and is responsible for finding investment managers to run parts of the endowment.

In 1999, Williams employed the services of three major investment managers, John W. Bristol & Co., Hintz, Holman & Hecksher and Sound Shore Management. Also involved is the College Treasurer, who runs the day-to-day administration of the endowment, including management of the College’s role as a limited partner in its private equity partnerships.

According to Phillips, the annual spending from the endowment is primarily used for financial aid, faculty salaries and facilities.

He indicated recent endowment performance was one factor in the College’s decision to freeze fees next year.

The College aims to maintain a balance between using endowment for the current generation and saving for future generations.

Each year, the Board of Trustees approves a budget, upon the recommendation of the Provost, with an endowment spending rate that balances these goals. Currently, the College conservatively forecasts a long-term return of nine percent on the endowment each year and expends roughly one-half of this forecasted return.

The rest is re-invested in the endowment and provide support for the College and students in the future.

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