<p>Oh wow, just wanted to point out that it’s commendable how Knox College has such a small endowment and is still need-blind.</p>
<p>And to refute that research has nothing to do with undergrad education. Even putting research opportunities for undergrads aside, my best classroom experiences at JHU have been with professors doing relevant research in the field or subfield being taught - there’s just a different level of contagious enthusiasm, whether it’s a huge lecture or a 15-student seminar. I’ve never felt that my education has come secondarily to professors’ research. On the contrary, I feel that research and teaching sort of enrich each other…</p>
<p>Of course, YMMV and fit is important. Some students prefer the more intimate environment of a LAC, and there’s nothing wrong with that :).</p>
<p>For the most part, public U’s are in a different category in the IPEDs database (GASB accounting versus FASB accounting for privates). I thought about adding the GASB universe in the database query, but decided that it was really unfair to publics because there is so much disparity in the way various states handle endowments for education. To the extent that any publics show up in the list I posted, it’s because they are publics using FASB accounting conventions.</p>
<p>I could go back and generate the list for GASB accounting schools sometime. My guess is that it will end up looking like a real head-scratcher. With a few exceptions, endowment is really a private school thing. For most publics, the state budget is their “endowment”.</p>
<p>Believe me, I am well aware of the changes in endowments that will hit when the June 2009 financials are made public. Actually, the tallies are starting to roll in and – thank god – many schools are seeing less bleeding than anticipated. For example, Swarthmore used an estimate of a 30% endowment loss in their financial planning. They quietly revised that to 17.5% in July. I believe their endowment spending for the new year will now fall smack dab in the middle of their long-range target (4.3% of the current value), when as recently as March they were bracing for the highest endowment spending in the school’s history (the previous high was 5.4% in 1983).</p>
<p>I already have some feel for where the LAC list will end up Grinnell had already dropped back by the end of 2008 as you show. Amherst got absolutely clobbered because of over-investment in private equity, absurd cash call commitments, and what can only be described as mismanagment of the liquidity in their endowment. They had to issue a taxable $100 million bond offering in January to cover operating expenses. Their debt load is now a staggeriing $300 million – nearly double Swarthmore’s and they are on the hook for $500 million in private equity cash call commitments – more than every penny of liquid assets in the endowment, even if they sold every last stock and bond. They literally took one of the strongest financial positions in higher education and turned it into a mess through mismanagement of their endowment. As a result, they just announced $48 million in budget cuts over the next three years and cut back to only hire three new tenure track professors (of the 18 that had been planned), while increasing enrollment by 200 students. They will have fewer tenure track profs for 1850 students than Swarthmore will for 1500 students. Plus, no new science center, no Arabic department to speak of (one “Five-College Post-Doc”). It’s a mess. Their investment allocation will likely yield one of, if not the biggest, endowment loss among all LACs. It looks like they’ll end up in the 25% to 30% range like Yale and Harvard’s losses. They were very heavily into private equity and hedge funds, light in stocks, bonds, and cash – very different than the allocations at Swarthmore and Wiliams. They are masking their losses by borrowing a $100 million operating cash instead of taking endowment draws this year and next. But, they have $5 million a year in additional operating expense for the debt service.</p>
<p>The top of the LAC chart for 2009 should be Pomona followed by Swarthmore with Williams, Wellesley, and Berea potentially in the mix for #3. Williams fared well in the market plunge, relatively speaking. I haven’t found anything recent on Pomona and I haven’t really looked for Wellesley. Berea does its own thing and may come out smelling like a rose.</p>
<p>On the university sdie, the big boys all mismanged their endowments and put themselves in a liquidity crunch. Harvard, Yale, Princeton, Columbia, Stanforrd, and Duke have all gone to the taxable bond market to raise operating cash. It’s been a real spectacle to watch Yale’s investment manager parade from talk show to talk show touting his brilliance at the very time his university was forced to borrow cash to meet payroll despite his “brilliant” management of a $22 billion endowment. He never thought about cash needs and liquity. It’s like the 80 year old couple that puts all their money in 20 year CDs.</p>
<p>While Brown will probably lose the same 30% most big schools lost, we had a far lower dependency on our endowment for operations costs and while we’re looking at some big cuts over the next five years or so, I’m glad to say that thus far we have not had to borrow money (from what I can tell) which is a very good sign.</p>
<p>I think that the lesson of this economy for college searchers is that money “in the bank” is not the same as money being spent or money that’s accessible or even stability.</p>
<p>Well, in fairness, I don’t know that that’s really Swensen’s fault. The job of an endowment manager is to secure high returns over a long time frame and is not (or should not be) to also manage the cash flow budgetary cycle of the university. The latter is the responsibility of the university’s financial officers and it is they who have failed. The real problem is that the schools increased their operational cash commitments on the presumption that endowment returns would always be available to cover them, and that’s not the fault of the endowment managers. After all, Swensen is not the one who decided to commit Yale to a program of increased faculty hiring, infrastructural upgrades, or expansion of research programs.</p>
<p>As the endowment manager, Swenson had to know the university’s projected annual cash needs from the endowment. It’s modeled going forward for some years. That would have to be the starting point for any investmsnt strategy. It’s just fundamental. The whole point of an endowment is to invest to meet the timeline for cash needs and to preserve buying power in perpetuity.</p>
<p>Eveybody lost, so I’m not holding that against the endowment managers. Everyone did not put their universities into a liquiidity squeeze. To run out of cash with a $22 billion endowment is financial mismanagment of stunning proportions.</p>
<p>I do totally agree that Yale’s President and Board Chair should be resigning along with Swenson. I am amazed that nobody is walking the plank at these schools. They should be. Alumni should be screaming bloody murder for accountability. Marx and the Board chair should certainly resign at Amherst. They could have put the endowment in a bank CD and been fine forever. For them to borrow $100 million operating cash and then try to pitch it as “creative financial thinking” is amazing. What’s amazing is how on god’s green earth you end up with $300 million in debt and $500 million cash call commitments on a $1.2 billion endowment? And be the only college in the country that doesn’t have a new science center to show for it?</p>
<p>Here’s the sticky part. At many schools the endowment invests in the private equity funds of the Board Chair and Investment Committee members. Kinda awkward in a year when the endowments have gotten clobbered and private equity cash calls are forcing colleges to borrow.</p>
<p>That all presumes that the operational cash requirements were known by Swensen and the other endowment managers before the endowment investment strategies were decided upon. The truth is almost certainly the opposite - Yale administrators saw the striking initial success of Swensen’s investment strategy, and only then decided to increase the cash flow requirements of the university - a decision for which Swensen cannot reasonable be held accountable.</p>
<p>I suppose one could argue that, in response to Yale’s new operational requirements, Swensen could try to adjust the investment portfolio to increase liquidity to meet those requirements. But I suspect many of his portfolio positions were long-term plays that were difficult to unwind. </p>
<p>So while I agree that a responsible investment manager will tailor an investment strategy according to the project liquidity requirements of the client, that manager cannot be held responsible if those requirements then change after the strategy has already been set. A responsible client is supposed to live within his means.</p>
<p>I don’t follow Yale closely, so I can’t say. However, the colleges that I do follow closely have two aspects to their endowment spending policies. The first is a percentage of the endowment value (usually a 12 quarter rolling average) that they will spend. Second, is a cap on how much endowment spending can increase year to year, regardless of return. The cap is in the range of a 5% year to year increase. They do this specifically to not allow a string of good years to drive their overall operating budgets through the roof. I can’t imagine that Yale didn’t follow a similar approach and that they didn’t model projected endowment spending out five to ten years. Every college I follow has those out-year models.</p>
<p>Now, everybody’s models are under pressure because none of the models factored a 20% one-year market collapse. Even the best managed colleges are having to scale back their operating expenses. Most of the well-managed colleges and endowments, however, are not having any undue liquidity problems, i.e. struggling to pay the light bill like Yale, Harvard, Amherst and others. They had sufficient money in bonds and even t-bills to provide several years of operating cash, even though that approach probably cost them a bit on ultimate return in the boom years. That’s the thing, when you are managing a $1 million per student endowment (a million dollar trust fund for each and every student on campus), you don’t have to be greedy. You’ve got it covered. You simply have a ficuciary duty to preserve the buying power for future generations. These are colleges and universities, not private equity or hedge funds – although it appears that some of the endowment managers were confused on that score.</p>
<p>Swenson has talked about the failure to properly consider liquidity. He said they just never dreamed it could be a problem because the market returns would cover their cash requirements. I don’t even have a problem with his miscalculation. It’s the unseemlyness of the self-congratulatory book tour at the same time his university is using a credit card to pay the light bill because they can’t get cash out of an endowment that started the year at twenty-two **BILLION **dollars.</p>
<p>The staight-shooters all thought they were down 30% in March 2009. They are mostly ending up 17% to 20% down as of June 30th and breathing a huge sigh of relief. They can handle 20% down. 30% down was going to require some painful, ugly cuts that would have constituent groups screaming bloody murder. </p>
<p>For example, if you have to cut a $300,000 program, you’ve got to cut something the Honors Program at Swarthmore or the football team at Williams. Think you’d hear some howling?</p>
<p>Harvard’s current endowment is 25B. It has 19,136 students and has a large medical school. Considering for the sake of argument that medical schools don’t eat up the chunk of endowment earnings, Harvard’s endowment per capita is only $1,306,438.12, more or less, not 1,7m as posted on here.</p>
<p>The data was from June 2007, near the top of the market. Harvard’s endowment at the time was just a tick under $36 billion. $25 billion sounds about right according to their latest estimates.</p>
<p>There’s no hard data on June 2009 year end endowment figures yet outside of statements by the schools. Harvard is still estimating a 30% decline. Yale acknowledged this week for the first time that their 25% estimate is being “re-evaluated”. That’s always been a questionable estimate given the extreme aggressiveness of their asset allocation. Yale, of course, borrowed a ton of operating cash rather than take an endowment draw this year. Same at Harvard.</p>
<p>So of the schools hardest hit–let’s say Yale, Harvard, Amherst, plus whatever you care to add–who is worst off in the short long-term (next 5 years), in your opinion?</p>
<p>I don’t have any idea. It’s almost impossible to wrap your arms around univeristy finances because they have so many business units. It’s hard to even put known cuts into context of the overall operations. For example, Harvard could say they are cuttung 100 facutly from the Faculty of Arts and Sciences and I have no clue what that really means in context.</p>
<p>Liberal arts colleges are easier because you can see what they spend money on, how much they have to spend, what they are missing, and so forth. Swarthmore must have seen it coming. For six months before the crash, they had been moving money into bonds and T-bills. They had refinanced all their bond debt to fixed rate so there weren’t caught with a dime of variable rate bond debt (the markets were very dangerous for that debt last fall). They didn’t have a dime tied up in the Commonfund Wachovia mess. And, they had at least three years of operating cash on hand. Plus, their endowment spending rates at been very low. They could handle a 15% decline just by increasing from 4.3% to 5% endowment spending, without cutting a dime.</p>
<p>Williams was in a similar position, although they have signficant variable rate bond debt and somewhat higher endowment spending. Good shape though.</p>
<p>Amherst is a mess. They have made the kind of mistake that moves colleges back a tier, although moving back would still be a strong position for them. They so leveraged that they are rolling the dice. If the market bounces back, then their leveraged endowment will enjoy larger returns and they’ll bail themselves out. Another market downturn with so much borrowed money invested would mutliply their losses.</p>
<p>Grinnell is a very well managed college. Aggressive investment stratgies probably mean sizeable losses, but they are conservative in fiscal management. </p>
<p>Most every one is just trying to make the cuts required to bring spending back in line with the new economic reality. The hard cuts are being contemplated for next year by ad hoc committees designed to deflect political heat. That’s less painful then it looked a few months back.</p>
<p>There are some schools fighting for their lives. Running out of money doens’t put collleges under, running out of students does. Bennington is a college that almost failed ten years ago and has zero cushion. If their enrollment were to start dropping, they would be in trouble.</p>
<p>Middlebury had a problem because they had been spending at unsustainable levels from the endowment throughout the boom years. FY2009 that just ended was their target year to finally bring endowment spending down to 5%. This meant that they had no cushion. If the endowment fell 20%, they had to immediately cut endowment spending by 20% or watch the percentage go through the roof.</p>
<p>To their credit, they appear to have done a fantastic job addressing the issue. They’ve been open and transparent about making some hard cuts. The steps they’ve taken include reducing staff levels by 10% (hopefully by attrition and early retirement incentives), increasing family contribution in finanical aid packages beginng with this fall’s freshman class, reducing international aid, closing a dining hall and reducing snack bar and other dining hours, requiring their language schools and study abroad sites to break even, wage freezes, hiring freeze, construction freeze, etc.</p>
<p>The better than expected endowment returns are a huge relief, I’m sure. They have their endowment invested with a consortium of schools managed by a bunch of ex-UVa managers down in Charlottesville. Fairly conservative, I think. They are only down 16% or so from what I heard.</p>
<p>It’s all on Middlebury’s website, including video of Q&A sessions with the Pres. I have not been a huge Midd fan (I think they are stretched thin with the study abroad stuff, the language schools, the Monterrey ascquistion, and so forth). However, I have to give them credit for the way they’ve gone about their cost-cutting. They moved quickly.</p>
<p>I would recommend that anyone choosing colleges this year spend the time to really research the financial situation of the schools they are considering. This recession is going impact daily life at most schools for the next five years, some more than others.</p>
<p>They mostly went for the low-hanging fruit for FY2010 that started July 1st. The hard cuts will be for FY2011 and 2012. They are all appointing special committees to round up consensus cuts and diffuse the political heat.</p>
<p>PS: Is “Lucky Starchild” a George Clinton Parliament character?</p>
<p>Interesteddad: have a closer look at Middlebury’s “business” model. An interesting case study in higher ed.</p>
<p>All those other programs you cite as stretching them are in fact subsidizing the very expensive undergraduate liberal arts program. Most top-tier LACs’ comp fees cover only 60-85% of the budget, and so $$ has to be made by endowment and gifts. In addition to endowment and gifts, Middlebury has these other entities (plus two more autonomous units – the Bread Loaf School of English and the Bread Loaf Writers’ Conference) that have subsidized the core undergraduate program. For example, its 33 sites abroad are all based on a straight P&L statement: for schools abroad, those programs have no infrastructure, as they rent and therefore can expand and contract easily, they attract the best students from outside Middlebury (42% of students come from other colleges and universities and Middlebury offers no financial aid to them – their home school does). When a new site is started, as will happen this year in Kunming and Beijing, China, and next year in Japan, the expectation and model is based on at least breaking even from straight tuition and fees with modest assumptions about enrollment targets. The 10 intensive Language Schools net the College $2-3M/year at least; and Monterey is budget neutral and in fact was the principle reason Middlebury had cash-in (fundrasing) years of >$60M two years in a row before the financial fall. Several large gifts for supporting “international initiatives” and Monterey came right after the College formed the affiliation with Monterey. Also, Monterey operates on its own tub, and has turned its financial picture around the past three years with record enrollments and fundraising, so it has added, rather than taken from, Middlebury’s overall total assets.</p>
<p>Middlebury did indeed overspend its endowment for a decade, but it might argue it got all its building in before the crash (science center, humanities center, library, athletics facilities, dining halls, and dorms), but it was certainly stretched. It did, however, bring its FY09 spend rate down to 5% as the administration had agreed to back in 2002-03 after the final building projects (and the bonds they required) were approved. Took 7 years, but that apparently was the plan. The actual real time spend rate, given a 200M decline in endowment is probably at 7-8%, but with the 12-quarter trailing average formula most schools used, Middlebury was at 5% spending for this year (and took fewer $$ from the endowment than it has in a decade).</p>
<p>And yes. Midd has been remarkably transparent and forthcoming and had been recognized as such. Perhaps it is the only or best way to diffuse the political heat effectively.</p>
<p>I understand the theory behind Middlebury’s expansion and diversification into multiple business units. However, the history of LACs that have followed that course is not pretty, Antioch and Bard being examples of schools that are (or were in the case of Antioch) not focused on the core business. Antioch is gone. </p>
<p>Even though the study abroad sites and language schools and Monterrey may be targeted to break even, they do not always do so. Even when they do, they represent a dilution of the endowment.</p>
<p>On the plus side, those endeavors have created a distinctive brand image for Middlebury (language and study abroad) this is a solid marketing position.</p>