Equities, spending reduce endowment

In January, the U.S. Senate called for an investigation of the wealth being amassed by Williams and other well-endowed colleges. In June, for the first time in recent memory, the College became a money-losing proposition. The 5 percent, or $107 million, drop in the College’s endowment in the 2008 fiscal year can be attributed to the College’s spending needs and the fund’s exposure to declining equity markets.

In the 2008 fiscal year, the College spent $240.8 million, dipping into the endowment for $90.8 million of those funds. This withdrawal was based on the projection that the endowment would grow 8 percent in the long-term. In this same time period, donations to the College increased marginally, from $51.3 million in 2007 to $53.7 million in 2008.

This substantial withdrawal from the endowment was coupled with a $19 million or 1.09 percent decline from investing activities. Collette Chilton, chief investment officer, links this drop to the fund’s exposure to both U.S. and global equities. U.S. equity markets fell 13 percent according to the Russell 3000 in 2008, while non-U.S. equity markets dropped over 10 percent according to the MSCI EAFE index. However, these drops were mollified by positive returns in real assets. “The endowment return was helped in fiscal 2008 by investments in real assets, such as commodities, certain private equity investments and real estate.”

For Chilton, this decline, coupled with the financial turmoil on Wall Street, does not warrant drastic changes to the way in which the fund makes investments. “The philosophy underpinning investment policy at Williams is that asset allocation is the single largest driver of performance and that dramatic, short-term tactical shifts will not enhance long-term returns,” she said. “In this time of unusually high market uncertainty and extreme return volatility, we are sticking to our long-term policy portfolio.” She added that the investment office will seek new investment opportunities and redouble their monitoring efforts of their investment managers to understand the risks in the portfolio.

Despite confidence in the endowment’s investment strategy, the fund may begin to see a decline in donations in the coming years as many donors are alums who are currently on Wall Street. “Many of our largest contributors to the Williams Campaign are from those in the financial sector,” said Steve Birrell, vice president of alumni relations and development, adding that their impact is “quite significant.” According to him, it is too soon to tell what impact a decline in donations will have on the fund’s bottom line.

This changing fundraising climate and declining economic conditions will play an impact on the College’s spending and use of the endowment next year. “It’s hard to imagine that we won’t have to alter spending for the coming year. But it’s too soon to know how much alteration and what kind,” said Jim Kolesar, assistant to the president for public affairs.

Dropping endowments

Williams is not alone in seeing lower returns on its endowments in the 2008 fiscal year. From June 30, 2007 to June 30, 2008, Harvard’s endowment, which grew 23 percent in 2007, was up only 8.6 percent this year. Amherst saw last year’s 27.8 percent gain reduced to 4.6 percent.

As the credit crisis has intensified in recent weeks, Wachovia Bank has limited the ability of almost 1000 colleges and universities to withdraw money from one of its funds with value of $9.3 billion. The College, however, has not invested in the fund.