Endowment Faces Major Challenges
By the end of the 2011 fiscal year, the University’s endowment consisted of $601.5 million. With the need-blind admissions debate escalating, many members of the University community have begun looking into aspects of the University’s spending budget, paying particular attention to the endowment.
Chief Investment Officer Anne Martin said that by looking at returns from the endowment, the University’s endowment ranks in the top quartile of its peer institutions. The University's endowment generated a 20.9 percent return for the 2011 fiscal year. According to Martin, the University will be drawing between 4.5 percent and 5 percent from the endowment for this year and it will provide about 12 percent of the 2012 fiscal year operating budget. Specifically, this comes out to about $12.5 million.
Despite the positive data regarding the University's returns, the endowment still yields an endowment per capita which is considerably less than many of the University's peer schools, including Amherst College and Williams College.
Martin discussed a few different options to increase the University's endowment.
“There are three things that you can do to grow the endowment over time: improve returns, grow donation, and reduce spending,” Martin said.
Finance and Facilities Committee Chair Andrew Trexler ’14 added that the University has had to cut several planned projects because of its present financial state.
“Other programs, not just financial aid, have suffered,” Trexler said. “For example, Hall-Atwater was slated to be renovated, but the project was scrapped.”
Additionally, Martin noted that the returns for the endowment would remain relatively unpredictable.
“The endowment’s return, to a large extent, is going to be dictated by the markets,” Martin said.
However, Martin also added that, out of the three methods for growing the endowment over time, increasing returns most likely had the least amount of impact, considering returns are already at such a high level when compared to the University's peer group.
“This is not a business where you can manage the endowment to just catch up in a small period of time,” Martin said.
Several students have expressed concern about how the endowment affects the current debate on need-blind admissions. Martin admitted that the endowment's situation was partially responsible for the University's change in policy.
“One of the reasons why financial aid at this school has to move in this direction is because the endowment is relatively small,” Martin said. “Conversely, one reason that some schools can afford to be need-blind is because they have a big endowment, and therefore the endowment can supply much more of the operating budget, which includes financial aid.”
Trexler agreed that the small endowment is a problem in the long run, but did not agree that the size of the endowment necessarily translated to the ending of need-blind admissions.
“The core reason why the need-blind admissions policy was revoked was because the University does not have the money to support it,” he said.
As the endowment is relatively small, the Investment Office draws less from it, in order to ensure positive returns. According to Martin, if positive returns are not guaranteed, the endowment will shrink and cause future problems for the University. She added that there is less money in the operating budget, and the University has been forced to make cuts across the board. Because of this, the University has cut all non-essential budget allocations. According to Martin, the fact that there was nothing left to cut without damaging the quality of the education partially informed the administration's decision to end its need-blind policy.
“The operating budget is like a pie; you can spend that pie on different things,” Martin said. “[Therefore,] the more you put into financial aid, the more you have to cut back in other places.”
According to Martin, the University has made progress in each of the three areas of potential growth that she mentioned. The Investment Office has worked to ensure positive returns for the 2012 fiscal year and to expand the endowment over time. Martin also stated that efforts have been made to improve donations to the University and cut spending through the Finance Office. Martin hopes that through this fiscal responsibility, the University’s fundraising efforts, and the necessary budget cuts, the endowment will increase in the coming years.