<p>Here is the endowment structure of a major west coast private university as of last spring. I imagine it is quite close to the allocation of boarding schools with large endowments. Absolute return is hedge funds. </p>
<p>I am involved professionally with numerous not-for-profits (although not schools). Not only are the endowments off significantly at every one of them, there is a serious concern that this will be a protracted downturn. Although many nfp's use a rolling average when markets are rising, there is a growing school of thought that this is inappropriate in down markets and may risk exposing the trustees (who have fiduciary responsibilities) to charges of fiscal irresponsibility. Some very experienced and very savvy investors on our boards are taking the position that we must foremost focus on asset preservation to the detriment of return. This means there will be much less income to spend and everyone is starting to draw up a plan B reduced budget.</p>
<p>When you say "asset preservation" does that mean don't sell and just hope for a rebound? If so, I'm guessing their investments are with companies that have been around a long time and have weathered the downs as well as benefitted from the ups -- a very conservative and prudent approach.</p>
<p>One problem I see with that (though, admittedly, I don't closely follow the market) is that investing in "blue chip" companies (if that's what they are doing) is not as secure as it once was. Everything appears to happen much faster in this highly competitive, global economy, and what was once a very wise place to put one's funds may be far riskier today. I realize that new companies take over as blue chippers but their hold seems far more tenuous, hence riskier investments for the long haul.</p>
<p>"Rolling Average" means that for whatever date the organization picks - for mine it is December 31 - you take the balance of your accounts on that date for the last 5 years (some use 3) and average them. It's "rolling" because each year you drop the oldest year and add the latest one.</p>
<p>sbergman was correct when he said that the smaller day schools/private schools will be effected most. The first one in our area closes this week. The school was unable to make the interest payments on a construction loan they took out to build their school building in 2003 and were unable to refinance the loan. The combination of declining enrollment and increasing interest rates did them in. </p>
<p>Thanks for that post neatoburrito. A very interesting read. The newsletter article quotes:
"Most private schools are not reporting dramatic declines in enrollment, but acknowledge they are relying more heavily on their waiting lists to offset the students who are leaving for less-expensive or public schools"</p>
<p>When you think about Spring of 2008 vs. Spring of 2007, it definitely holds true. In 2007, those of us with kids applying saw ZERO movement off waitlists and many schools overenrolled. This past Spring, even top schools went to their waitlists.</p>
<p>"The Commonfund Intermediate Term Fund held $1 billion in assets for the schools. Commonfund, a Wilton, Conn., investment adviser for colleges and schools, told clients they could withdraw only 30% of their money now, and said it will make the rest available "as quickly as possible," depending on market conditions. The fund would normally give investors any part of their money the day after a withdrawal request."</p>
<p>At present, the depositors can look forward to getting all their money back, in installments, by 2011.</p>
<p>Some schools will be fine. I'd guess that the schools with the largest endowments will do well, because they'll have diversified their holdings. Some schools will have problems, ironically enough, some of them will have problems because they chose "safe" investments. Some schools will have built long term relationships with wealthy families, who will be willing to help them through hard times.</p>
<p>(my predictions) Endowment funds devoted to financial aid will guarantee that financial aid is still offered. The competition for FA will be even more intense. Most of the methods schools choose to trim their budgets will not affect the quality of education they offer.</p>
<p>The Rector at SPS made an announcement stating that the trustees had reported a significant loss of funds in the endowment. He also said, however, that we shouldn't worry.</p>
<p>There were several articles in the Phillipian last week about how Andover is handling the economic crisis. The Head of School also sent out an email to the Andover community to reassure us. They basically said the endowment is well diversified, but everything is down. Financial aid will continue to be need blind, but there will be adjustments in other areas.</p>
<p>I'm assuming that full pay applicants within the U.S. will plummet this year. There will be significantly fewer people who, by January, will be able to commit to four years of boarding school tuition without aid. And, frankly, those who want aid and may need aid are going to be burdened by the fact that their tax returns may not support the level of aid they need (then again, isn't that always the case?).</p>
<p>I wonder how admissions offices are going to respond to this. Will they reduce class sizes? Will admissions be less competitive this year for full pay applicants? For that matter, will admissions be less competitive this year for financial aid applicants? (On the theory that a 2/3 paying student beats an empty bed and desk.) Will they alter the composition of the student body in some other way to adjust? Or are they simply going to make tweaks that will barely be noticed?</p>
<p>The bottom line questions of practical relevance is should applicants this year adjust the list of schools that are within their grasp when deciding where to apply? Should the traditionally more competitive schools be looked at more closely? Should schools with smaller endowments be avoided or looked at warily? </p>
<p>And where does one turn to get authoritative and informed answers? I ask this last question because I think many educational consultants are masters of the stasis that existed before this year, but I wonder how (and whether) they are keeping up with the volatile flood of information they need to be gathering and processing to effectively advise applicants this year.</p>
<p>With parents' weekend approaching, it will be interesting to see if some of these questions get addressed.</p>
<p>It's amazing to see how much further things have deteriorated in the financial markets since I started this thread 2 weeks ago.</p>
<p>If I had a child applying this admission season, and was full pay, I would definitely reach for schools. I think your chances would be better than ever. I think the full pay applicant will have a much easier time, and if you're looking for FA, apply to a lot of schools and good luck!</p>
<p>I agree, D'yer Maker. The number of apps will have to be down. Many folks have seen their net worth cut in half. Very sobering...</p>
<p>yes, I agree that educational consultants know what went on last year and in year's past, but they (we), also know that this year is a complete blood bath. Many people in the know are saying that some schools will go out of business. Obviously not Andover or St Paul's but I'm sure you can all think of a few. Those that were always a big short on students, had little endowment..... they are not going to be able to find enough people able to pay $40k. </p>
<p>Consultants are also talking about the college market. More people are turning to state colleges and might incorrectly assume they will get in. MOre are asking for aid and might incorrectly think they will get it. Lenders are cutting back. There is some concern that families are not preparing for this year's college situation in the way that they should, and consultants are asking colleges to speak out on this topic. </p>
<p>As for the boarding schools, it's going to be very tough for them this year. I'm still a bit shell-shocked by all that has happened in the markets, and particularly my region, the NYC area. Of my "families" that I work with, they are in the process of reconsidering whether boarding school is money well spent for them in light of the plummeting market and uncertain job situation.</p>
<p>But one of them told me he is calling for a bottom in the stock market decline next week, so let's all hope it is onward and upward from here!</p>