Endowment Outperforms Market After Two-Year Slide

Author: Chelsea Coffin

Middlebury College enjoyed a long-awaited term of positive returns on its endowment this year.

In November 2002, President John McCardell addressed the decline of the endowment due to a recession in the economy. "For the next two years, we will be less able to rely on our endowment for revenue than we might have hoped," he had said.

Subsequently, the College decided to bolster the endowment with a short burst of capital fundraising. An anonymous donor pledged to contribute $10 million if $30 million could be raised and received by June 2005. The campaign from October to June 2003 exceeded all expectations, raising $41 million to be paid by June 2005.

In addition to achieving fundraising goals, the College also decided to reduce spending. "We only made reductions that were not affecting core academic activities," said Bob Huth, vice president of administration. For example, mail is now delivered once a day instead of twice and more material is available on the Web to eliminate printing costs.

The College has further cut costs by reevaluating staff positions once they are empty. Huth was quick to point out that the College has not resorted to laying off faculty or staff, a solution used by many other colleges in similar situations.

However, after two years of decrease the College's endowment enjoyed a year of positive growth in the fiscal year ending June 30. The growth rate of 4.3 percent was better than that of broad stock markets in the same year and the 2.9 percent growth rate of other colleges.

The main use of the endowment is to cover the difference between the comprehensive fee of $38,100, and the cost the college incurs per student, which is approximately $60,000. Huth estimates this collective cost to be $49 million per year. The endowment covers $39 million while annual gifts cover the remaining $10 million.

The most important quality of the endowment is its reliability over time. "The goal is to have the endowment to be around for your children," said Derek Hammel, manager of investments.

One may question the College's decision to continue with the library and Atwater construction projects despite fluctuations in the endowment. However, these construction projects are funded independently from the endowment by bonds already issued in June 2002. In the meantime, funds set aside from the endowment will help to pay off the resulting $71 million loan. "It was a good time to borrow money," said Huth, "These are not decisions you make for one year. The endowment is there to support [the College] over the long run." In addition, he anticipates that the completion of the new projects will inspire further gifts to the college.

Regarding the future of the endowment, Hammel anticipates more growth. "I do not have a crystal ball, but I would like to say the worst is over." The next few years will tell.