College endowment falls with declining economy

With its quiet gardens, brick colonial buildings and serene tree-lined walkways, the College of William and Mary is far removed from the daily grind of Wall Street.

But not far enough.

College officials estimate that the College’s consolidated endowment has lost nearly 15 percent of its value over the course of this fiscal year as a result of the nation’s declining economy.

“This was a bad time,” Vice President for Finance Sam Jones said. “And there was nowhere to hide.”

Vice President for Development Sean Pieri also agreed with Jones about the state of the economy and its impact on the College.

“Every aspect of the economy is struggling,” Pieri said. “Basically it’s [due to] elements that are admittedly beyond our control.”

In a Dec. 5 statement to the College community, College President Taylor Reveley said that the largest pool of the invested endowment had lost 19 percent of its value as of Oct. 31, which he compared to a 24 percent decline in the Standards & Poor’s 500.

Events following Oct. 31 are not believed to have helped matters.

“As you know, November was a terrible month for the market and the economy so I don’t think it will come as a surprise that our consolidated endowment took an even harder hit during the final two months of the calendar year,” College spokesman Brian Whitson said in an e-mail.

The pool Reveley was referring to is controlled by the William and Mary Foundation—which, according to Pieri, held approximately $450 million of the College’s $580 million consolidated endowment as of June 30, 2008.

The endowment is invested in a variety of domestic, foreign and private equities, along with real assets and absolute return strategies.

The diversity of the endowment’s portfolio is what kept the school from facing an even greater decline, Pieri said.

“We are probably in the top quartile or top [33 percent among all universities] in terms of our endowment,” Pieri said. “I’ve been hearing numbers all over the map [from other schools].”

According to Jones, gifts to the endowment over the past few months have helped considerably.

“Obviously everyone has had losses across the board,” he said. “However, with new gifts coming in, we’re looking at a decline of 15 percent.”

In addition to the damage done to the endowment, the school is no longer receiving the same level of support from the state.

“What’s tough is we’re losing state funds and the endowment’s suffered,” Jones said. “That’s made it more challenging.”

Governor Timothy M. Kaine’s Dec. 17 proposal to reduce state funding to all state universities by 15 percent would cut next year’s annual budget by $9.7 million.

However, the endowment’s impact on next year’s budget will be diminished by the College’s use of a three-year average in calculating spending. Instead of using the value of the endowment for this fiscal year, the College calculates the endowment’s average value over the past three years to prevent overspending in years of growth, and underspending in years of decline.

According to Jones, the impact of the endowment’s decline is also softened by the comparatively lower proportion of the College’s budget that is supported by private funding — 12 percent, as opposed to as much as 45 percent at some private institutions.

“Most of the time, I’m very envious of schools that have a higher percentage of their budgets supported by their endowments,” Jones said. “Not now though.”

It is unclear when the endowment will rebound from this year’s decline.

“Is it going to recover in the next year? I don’t know,” Pieri said. “The general economy is going to dictate what happens to the College’s endowment.”

Jones said he believes the next year will be rough for the economy and, in turn, the endowment — but the positive effects of the bailout could be seen by July 2010.

“This isn’t the first bump in the road. I’ve been here since 1986, and this is the third recession we’ve had,” Jones said. “It’s inconvenient, and at times painful, but it will bounce back.”

The College will have a clearer understanding of how the endowment has fared so far this fiscal year in mid-February, Whitson said.


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