Last Friday, the College announced that its endowment investments dropped 16.99 percent in value for the fiscal year that ended on June 30, 2009. Including net expenditures and financial gifts received, the endowment decreased from $831.5 million a year ago to its current market valuation of $688.5 million, only slightly higher than its fiscal year 2006 value of $673 million.
By comparison, Cambridge Associates, which tracks and reports endowments nationwide, reported that the mean college and university endowment return was a 19.99 percent decrease, while the S&P 500 saw a total decline of 26.22 percent.
"On a relative basis, I think we're going to show up on the very top decile of returns, but it's still heartbreaking that it's a double-digit decline," said Senior Vice President for Investments Paula Volent.
Both President Barry Mills and Volent emphasized that Bowdoin's endowment fared well compared to peer schools, and praised the College's approach to investments.
"Speaking relatively, the endowment really fared impressively.," said Mills. "The impressive and excellent way our endowment is managed, the fact that we have relatively less debt than many of our peer schools—those two things are very, very helpful in this economic environment,"
Bloomberg reported that Amherst saw a 20 percent drop in endowment investments, decreasing from $1.71 billion to $1.31 billion, after accounting for expenditures and gifts. Williams suffered an endowment investment loss of 18 percent, dropping from $1.81 billion to $1.41 billion.
Among schools with bigger endowments, MIT's investments decreased by 17 percent, from $10.1 billion to $8 billion, while Columbia saw a 16.1 percent decline. Harvard and Yale took bigger hits: Harvard's investments dropped 27.3 percent, while Yale saw a 25 percent decline, resulting in respective endowment values of $26 billion and $16 billion for the year.
Endowment comparisons are like an "arms war" between colleges, according to Volent, despite the fact that it's like "comparing apples to oranges." Colleges of different student and endowment sizes will pick investments that match their needs or ability to take on risk. MIT, for example, owns a lot of its own real estate and leases it out as an investment, she said.
At Bowdoin, Volent said she's trying to balance this year's assets by running a variety of financial scenarios to see how predicted investments might fare—examining what happens if inflation rises, if the government starts removing its stimulus, and what effect China's growth might have on the College's investments.
Volent said she thinks the College outperformed other peers by picking smart external managers to handle assets, diversifying allocations, and avoiding certain risks or large debts that other schools have taken on. By trying to estimate what kind of a recovery pattern the economy might take, she'll work to procure investments to support the endowment, operating budget, and ultimately, Bowdoin scholars.
"I'm pretty optimistic, I think we're going to do great," she said. "I'm pretty optimistic because we have a really good set of managers that are going to see really credible opportunities going forward."
Campaign completion
Amid troubling reports of endowment declines, the recent completion of the Bowdoin Campaign drew in $293 million for the College, $43 million more than the original goal. Without the campaign's revenue to increase the endowment, fund capital projects without taking on debt, and maintain financial aid commitments, Senior Vice President for Planning & Development Bill Torrey said it's likely the College would have seen greater losses and harder times.
"The campaign really made a difference in our ability to maintain the program that we have," he said. "The bottom line is, the campaign was great, it was successful, and it's over. It's funded the capital projects we wanted to do, helped us add most of the faculty we wanted to, and increased our financial aid budget."
Nonetheless, for the sake of financial prudency, an event planned to celebrate the campaign's success was cancelled. Last week, in an announcement to the campus community, Mills and Torrey announced that the Homecoming Weekend affair, while in good taste, would be cancelled so as not to "send the wrong message." Torrey said that by cancelling the event—planned to include dinner, faculty presentations, and an evening dance—the College will save an estimated $100,000.
"While Bowdoin remains a strong and vibrant community, we are not immune from the financial challenges that face our country and all colleges across the nation," Mills and Torrey wrote in their e-mail. "To give even the appearance that the College is diverting resources away from the academic and student programs seems inappropriate at this time."
Campus cutbacks
To compensate for radical shifts in the economy and its endowment, Bowdoin withdraws a proportion of its endowment each year based on a 12-quarter lagging average of performance. Since draws on endowment support approximately 30 percent of the College's annual operating budget, this means that when the endowment drops 16.99 percent in 2009, Bowdoin doesn't have to make drastic cuts all at once to compensate. Rather, the impact of one bad year is smoothed over time.
With this in mind, Mills created the Blue Tarp committee last year to plan how Bowdoin could best reduce expenditures and balance its budget in the years to come. The College decided to expand the student body by 50 full-time students over five years, freeze faculty and most staff salaries for two years, and hold operating costs flat. In doing so, the College agreed to carry on pre-existing faculty searches, maintain its major maintenance and capital projects, avoid lay-offs, and uphold its no-loans policy for financial aid.
"As I read about schools that are far wealthier than we are that aren't hiring faculty, that are leaving positions open, closing departments, and laying people off, it certainly gives you pause as to whether we've taken all the right actions. But at this point, given where I see Bowdoin and our financial condition, I think we've taken the appropriate measures," Mills said.
Senior Vice President for Finance and Administration Katy Longley expressed similar sentiments, approving current decisions.
"We do get pressure. Some trustees have said we should do more," Longley said. "But we don't want to overact, so that when the economy turns better we preserve what's special about Bowdoin."
So far, she said, Bowdoin has held true to its outlined goals—reducing discretionary spending and travel expenses, adding students, rethinking faculty positions, and staying true to campus upkeep and capital project budgets.
"Things were tight, we ended up on a balanced budget, and that's good news. I think that's attributable to everyone tightening their belts and controlling expenses, I think it was a lot of teamwork across campus," she said, advising that budgeting is better than laying off staff.
To include the campus community in better budgeting, Bowdoin is soliciting proposals for "ways in which the College may reduce costs and maximize revenues in current operations," and has set up a suggestion form on the Treasurer's Web site.
Looking ahead
Even though Longley and others are hopeful that the economy is recovering and that the endowment will bounce back, Mills will reconvene the Blue Tarp committee this semester to get people thinking about the economy once again.
Last year's committee recommendations were based on a forecasted 0 percent investment return for this year and next, and 7 percent every year thereafter. With a growing campus, increasing demand for financial aid, rising health care costs, and a reduced endowment, the College is expecting budget difficulties to grow.
"We're really trying to save for what are projected to be harder times in the out years," Longley said. "We're balanced for this year, should be balanced for next year, but starting in 2012 and beyond, we start seeing some deficits because the endowment went down and deficits went up."
Longley said there are several million dollars set aside already, and is hopeful that either more can be set aside to cover Bowdoin's operating budget or the endowment will perform better than expected in coming years.
"If we can have a few years of positive endowment returns...without excessive inflation, things should start returning to normal. But that's a lot of 'ifs'," she said.
Mills agreed, adding that he thinks "we are on the right path," but that "we have to be continually alert...Because if people go back to think it's business as usual then we've got a problem."
As for future revenue, Torrey expressed concerns about annual giving to the College, which accounts for 6 percent of the operating budget and is becoming increasingly difficult to achieve. Bowdoin's annual gifts and donations were down 6 percent last year, on par with other schools, down "between 5 and 20 percent across the board," Torrey said.
Considering that gift giving is more difficult, endowment returns are down, and the College can only increase tuition so much, options for increasing revenue are limited. While Volent thinks this economy could result in great investment opportunities for the long-run, the short-run reality is tougher to swallow, and may necessitate that students lower their expectations for new campus projects.
"I don't think you ever stop assessing how you're going to get better, but you also do so recognizing there's financial limits," Torrey said. "At the moment we're not doing any major planning of any major facilities, but that doesn't mean we don't stop dreaming."