<p>By and large, Amherst still has more resources than the smaller endowment schools, although clearly Amherst’s financial mismanagement is forcing it to make more extensive cuts than its financial peers: Pomona, Swarthmore, Williams, and Grinnell.</p>
<p>It’s not like the next tier down (Bowdoin, Haverford, Vasser, et al) aren’t facing their own fiscal demons, some more than others.</p>
<p>One thing I have started tracking is endowment net of debt (and per student net endowment). This solves the problem of Amherst hiding the true hit to their endowment by borrowing $100 million for operating expenses. In effect, they are overstating their endowment value by $100 million. Netting out the total debt addresses that problem. At least for the top LACs, the order is the same with or without the debt differences.</p>
<p>Ok…so you are deducting $321 billion from Amherst’s endowment when calculating endowment per student.</p>
<p>“By and large, Amherst still has more resources than the smaller endowment schools, although clearly Amherst’s financial mismanagement is forcing it to make more extensive cuts than its financial peers: Pomona, Swarthmore, Williams, and Grinnell.”</p>
<p>“At least for the top LACs, the order is the same with or without the debt differences.”</p>
<p>Isn’t what really counts that Amherst still has more resources than almost all schools? That Amherst has enough resources for a student to have the opportunity to get a great education? If Amherst is still around the top 5 schools in its class, financial wise…is Amherst’s financial situation really an issue for students or prospective students??</p>
<p>I complain about the mismanagement of these schools too…It’s shocking to me…but the education these schools offer is still exceptional…even with the financial issues. Right?
And in the end, that’s what counts, right?</p>
<p>And when you look at endowment per student, do you consider capital calls? How much the endowment is restricted to particular uses? How much a school spends its endowment per year?</p>
<p>Yes, I have added “debt” and “capital calls outstanding” to my little spreadsheet. Most colleges fall in a narrow range of debt or cash calls as a percentage of endowment, but there are some notable outliers.</p>
<p>
[quoteIf Amherst is still around the top 5 schools in its class, financial wise…is Amherst’s financial situation really an issue for students or prospective students??
[/quote]
</p>
<p>It should be. Amherst is making far more drastic cuts than its peers. Amherst is going from 1650 students to 1800 students without adding faculty. They will have a smaller faculty for 1800 students than Swarthmore has for 1500. That’s not window dressing. That’s a real cut in product quality. Forced to make double the cuts that Swarthmore or Williams are making, the odds of Amherst building a new science center to replace the one they call “obsolete” is slim. The odds of having anyone teach Arabic beyond one 5-college post-doc is slim. The odds of developing a top-shelf “writing across the curriculum” program just went down the tubes. These are real differences. </p>
<p>Depending on how things break with their private equity investments, Amherst might have just made the kind of mistake that moves the school out of the top tier, as they will certainly fall behind in the breadth, depth, and quality of the educational product. As it stands right now, any science major would have to be nuts to choose Amherst if they also had acceptance letters from Swarthmore and Williams in hand. Same for anyone looking to study Arabic (now one of the most popular languages).</p>
<p>The thing that people need to understand is that what was there two years ago may not be there two years from now at many colleges and universities. The situation is so fluid that a normally static assessment (where per student endowment would suffice as a single variable proxie for resources) becomes more complex, not because the measure was flawed in a stable environment, but because we are looking at such a dynamic period of rapid change. Everybody is making cuts, but some have the luxury of phasing in cuts in a measured way. Other’s literally have no option but to cut NOW. There are big name colleges making significant cuts in the size of their faculties because they have no choice.</p>
<p>Personally I find it shocking that some of these schools have gone from boasting about the size of their endowment to taking out loans just to pay the bills. </p>
<p>I’m guessing a lot schools are now learning the hard way that if you’re going to rely on an endowment as a primary source of funding for primary operational expenses then you can’t tie up too much of your assets in complicated investment vehicles. Such risky strategies may make for nice press releases boasting about the paper value of ones endowment, but if it’s all tied up in non-liquid investments then it’s essentially just a number on a piece of paper.</p>
<p>Furthermore, given all that’s come out about some schools’ endowment management it’s also appropriate to seriously question the true value of these investment vehicles where so much of the money is tied up. When you consider things like capital calls, some of these investments now consume rather than generate funds (not just losing paper value, but requiring additional cash payments into these black holes). </p>
<p>At the end of the day the true value of these investments is only as much as someone else is willing to pay for them. Given that few are willing to pay anywhere near what some are ‘valuing’ these portfolios at I think a lot of people would be shocked to see the difference between that true market value of these endowments and the reported current paper value of the portfolios… even after this past year’s reported ‘losses.’</p>
<p>I think a lot of endowment managers are banking on a general market recovery bailing them out before they have to face the music on the real valuations. </p>
<p>For example, if the market bounces back and private equity throw off some returns over the next four years, then Amherst will be fine with their cash calls. But, if their endowment throws off no cash between now and 2013, they are in a world of hurt.</p>
<p>And if I am a full-paying parent, I want my kid to get the product I thought I had paid for when he accepted an offer of admission. So maybe I take my full pay dollars elsewhere, whereas if you need to compare financial aid packages, you end up readily accepting the increased class size, the larger student/teacher ratio and maybe too, you’re not a science major. So does Amherst lose out on more full pays in this scenario? Watch their ED decisions soar. One definitely has to consider whether or not it’s in Amherst’s long-term best interests to hold on to the no loan policy in general, but if their peers dont drop it or raise the baseline for qualifiers, it’ll just be one more check mark working against them.</p>
<p>When S was deferred last spring from Amherst, a school that had originally be very high on his list, it was clear then that the proposed science center would be a distant memory during his four years, and while Williams or Swarthmore weren’t alternatives of choice, he didn’t choose to even remain on the waitlist at Amherst.</p>
<p>However, I have no doubt that Amherst will weather this storm and this blip will really only affect those kids over the next couple of years in the classroom, but not in reputation… It will not send the school sliding to the bottom of the heap in the long term and an Amherst degree will always be considered a prestigious one. It’s not like saying twenty years from now, I graduated from Amherst in 2012 and people will say, “Oh… I am sorry.” :)</p>
<p>That is probably true. Amherst is, however, in a very risky place with its endowment right now. If private equity comes up snake eyes, they could be in for a rocky ride indeed. Colleges have moved out of the very top tier based on a financial meltdown. Haverford is an example. Their per student endowment was larger than Swarthmore’s fifty years ago and they spent it down with an ill-time expansion plan in the teeth of a post-baby boom demand softening. There are other examples.</p>
<p>I actually think it’s a bit early to be assessing winners and losers from a period of dynamic change. Five years from now will be a better vantage point.</p>
<p>We’re certainly entering a period of “dynamic change” when ordinary shibboleths of “single variable proxies for resources” (like, endowment per student) are increasingly replaced by niche marketing, “branding” and splashy PR at even the best known colleges. What else is one to think when Yale, of all places, feels the need to produce something like this: [YouTube</a> - That’s Why I Chose Yale](<a href=“http://www.youtube.com/watch?v=tGn3-RW8Ajk]YouTube”>http://www.youtube.com/watch?v=tGn3-RW8Ajk)</p>
<p>ID, Amherst recently received two large ($100 million and $25 million) donations from alums - how does that impact your analysis? Or are those gifts already included in the endowment numbers you are using?</p>
<p>JohnWesley - I think this has far more to do with the “glee” and high school musical generation than anything else. No matter how weird I think it might be, my kid probably thinks it’s hip and fresh. And for all intents and purposes, kids dont really pay attention to endowments. Well, let’s just say i know MY kids dont much care about my bank account. :)</p>
<p>Actually, to be precise, those were both pledges to be paid to Amherst over the next five years. They are part of the on-going capital campaign, but have not been received and don’t figure into last year’s financials – although they were the lead paragraph in the President’s Discussion!</p>
<p>As near as I can tell, those two pledges will have to go straight into private equity cash calls over the next four years. Without them, I don’t think Amherst can cover all their cash obligations. Between endowment spending for operations and cash calls, Amherst will be shelling out over $150 million a year in cash for the next four years, over and above student revenues, alumni gifts, and operating revenues. That’s a tough nut to crack with a $1.3 billion endowment and only $450 million in liquid stocks and bonds. Certainly these gifts and the rest of the campaign gifts come at a good time.</p>
<p>Here’s another time bomb. Almost all of Amherst’s debt is variable rate (except this new taxable issue. The interest rates are incredible low right now, but are expected to go up dramatically with the slightest economic recovery (thanks to massive government borrowing and resulting inflationary pressure). This is one reason many colleges are looking at daunting out-year financial projections. To show you how crazy these credit markets were for a few days in November 2008, Amherst saw interest rate swings from under 1% to 9% on some of their variable rate bonds.</p>
<p>I can see how that would be very accurate Interesteddad, (and not very in tune with who gives them money), but it also got play on The View and I believe, one of the late night shows… so it might be like they say… it’s only bad news when people AREN’T talking about you.</p>
<p>One has to wonder, just from a layman’s perspective, why Amherst is calling for the heads of their investment group. When I mentioned this situation to H, he asked who was on Amherst’s board and that he would want to know their affiliations before he had an opinion.</p>
<p>I think that it was well-produced and it looks somewhat informative. I imagine that it’s a bit of an ego-stroker for those that are accepted but it looks a little self-obsessed from the outside.</p>
<p>Be honest now. Have any of you lasted the full 16 minutes of that Yale video. The average seems to be somewhere between 2 and 3 minutes before nausea sets in. I felt myself literally wanting to break something about 2.5 minutes.</p>
<p>The first time I tried to watch it, I thought it was a spoof because of the overacting and then I read where it was actually produced by and for admissions. That time I made it to the dorm room situation (unless that came before the cafeteria) but that was as much as I could take. Of course, I never saw the appeal in high school musical or glee (and yet, it’s a hit according to the Golden Globes).</p>
<p>Anyone else troubled by the idea that almost all the singing was dubbed (including the Obama-esque adcom-who-is-really-a-struggling-New-York-actor) by members of different choral groups who were clearly deemed insufficiently photogenic to appear onscreen as themselves? In fact, isn’t there something that crosses the line about implying any of the people with speaking roles were actually who they said they were (with the possible exception of Brian Williams?)</p>