Endowment has shrunk, outlook still optimistic

The College’s endowment has decreased by approximately $300 million since June 30, 2000. As of June 20, 2002, the College’s endowment stood at $1,033,983,766, while total investments, including the endowment and other miscellaneous financial resources, were valued at approximately $1,189,003,764.

Christopher Wolf, manager of investments and treasury operations for the College, acknowledges the recent decline in the value of the endowment, but also “prefers to focus on the long-term.” Within the last 10 years, the College received a compound annual average return of approximately 15 percent.

Since tuition, monetary donations and other miscellaneous revenue do not cover the College’s annual expenses, funds from the endowment are used to finance one-time, large scale expenditures such as the upcoming campus renovations, faculty salaries and financial aid for students.

“Truly endowed funds are meant to serve the College in perpetuity,” Rich Myers, associate provost and director of budgets, said. “[The College] spend[s] income off the endowments each year, but do[es] not touch the principal. . . much of our endowment is restricted.”

Funds from the endowment are part of the College’s portfolio and are invested as such. Liquid assets remain minimal, but according to Myers the school maintains “funds functioning as endowment, ‘quasi- endowment.’” The College has the option of spending the principal from this “quasi- endowment” to support campus projects, since these funds are not regulated by the stringent rules which apply to the legal definition of the endowment.

Each year, the College “plan[s] on using [between] four and five percent of [its] endowment. . .on average we assume [that] we will earn nine percent on our endowment and receive new gifts to the endowment of one percent of its value,” Catharine Hill, provost of the College, said. “These past two years, we experienced negative returns . . . leading to declines in our endowment. But given the very high returns during the late 1990s, our endowment is still very strong and our average return over the last decade [has] exceeded our [expectations].”

The Finance Committee of the Board of Trustees is charged with managing the disparate assets that belong to the College that are generally referred to as the endowment. While planning to increase fundraising efforts to support campus renovations, the Committee expects the endowment to earn nine percent interest each year despite the current state of the nation’s financial markets.

The Financial Committee evaluates the College’s investments placed in the hands of money managers and also analyzes asset and monetary allocations.

“Due to our financial strength and extensive alumni network, the College has been able to invest in world-class money managers over the years, including private equity partnerships and hedge funds,” said Wolf. “The Committee tries to strike the right balance between risk and reward as it manages the College’s funds for the long-term.”

“It has been a very tough investing environment for more than two years, with major equity indices down substantially,” Wolf continued. “While some parts of our portfolio have done well over that period, our large exposure to equity and equity-like investments has contributed to our [endowment’s] recent decline.”

Alumni donations heavily subsidize the College’s overhead costs and decrease its dependence on the endowment for financial support. The Alumni Relations department seeks unrestricted donations to help support the endowment by funding scholarships and campus improvement.

The College has already allocated much of the funds needed for the large scale renovation projects scheduled for the coming decade. Wolf emphasized that it is important to “keep in mind that while [the College’s] investments increased roughly 15 percent a year for the last ten years, spending only increased six percent a year. . .during that period we were ‘saving for a rainy day.’”

“You cannot ignore the market when talking to prospective donors, of course; [on the other hand,] you [do not] want to suspend conversations with alumni about support for the College,” said Steve Birrell, vice president for alumni relations and development. “At the very least we must continue to educate [alumni] about the College’s needs in anticipation of the market’s recovery.”

“While it is true that many folks are feeling less affluent than they did in March 2000, many are still better off than they were several years ago,” he said.

Numbers from the 2001 NACUBO Endowment Study, show how the endowments of our peer institutions, such as Swarthmore, Amherst and Middlebury, compare to Williams. Endowment Value per Student Enrolled using June 30, 2001 market values shows the following:

Grinnell: $ 741,441

Pomona: $ 708,261

Swarthmore: $ 648,855

Williams: $ 604,066

Amherst: $ 528,180

Middlebury: $ 279,062.

Figures for fiscal year 2002 have not been released, but the College ranked 17 out of the nation’s 40 educational institutions with the largest endowments last year. “Given [past] income streams, combined with our spending plans, we expect the endowment to grow in the future so that it can continue to support our operations at a minimum [and] at the same real level as it does today,” Hill said.