Bear markets slow fundraising gains

Author: Scott Greene

The College took steps last week to mitigate the effects of a sluggish economy, hoping to counter both a decline in gift-giving and an underperforming endowment by reducing spending across the board and avoiding an increase in the comprehensive fee, according to President of the College Ronald D. Liebowitz.

The world financial system took another hit on Sept. 15, when Lehman Brothers Holdings declared bankruptcy more than five months after the government-orchestrated bailout of fellow investment bank Bear Stearns. The College has minimal exposure to the bankruptcy of Lehman Brothers, according to reports by Investure, LLC, which manages the College's endowment. Unlike Princeton University, which last week reported that the interest rates on its bonds had skyrocketed to $8,000 per day, the College pays interest rates to the tune of about $4,900 per day. Whereas Lehman Brothers underwrote the Princeton issuance, the College's underwriter is Goldman Sachs.

"We have faced increased costs, too, but not as large as Princeton's," Liebowitz said. "The assumption is things will settle down some and this premium will shrink. At least we hope that is the case."

Liebowitz also cautioned that recent economic instability, including the effects of last week's government bailout of American International Group, will take some time to fully understand. In a memo to staff and faculty on Sept. 8, Liebowitz addressed the challenges facing the College as it feels the impact of a year-long economic slump that has yet to bottom out.

"Middlebury is not immune to the greater national and global economies, and we therefore need to respond to the current economic downturn in a disciplined and thoughtful fashion," he wrote in the memo. "Despite the College's strong financial foundation, the effects of a declining or stagnant stock market will reduce the level of support the operating budget receives from the endowment, and a prolonged economic slowdown is sure to have an impact on charitable giving to the College."

The College has currently raised about $286 million of the $500 million targeted as part of The Middlebury Initiative, the most ambitious fundraising venture ever attempted by a liberal arts college. The campaign, however, raised $234 million in the silent phase before its unveiling in Oct. 2007. In the year since, only around $50 million has been added to its coffers.

"Last year we fell off in our fundraising, as most schools did because of the slowing economy," Liebowitz said. Fortunately, the College's performance during the initiative's silent phase still leaves it ahead of schedule to reach the goal of $500 million over the next four years. Still, Vice President for College Advancement Mike Schoenfeld said that challenges remain and this year is likely to be a slow year for fundraising.

"It is going to take a while to raise the rest of that money," Schoenfeld said. "You have to do well when you have good years, and years when the economy is bad you have to have patience."

Schoenfeld, reached by phone while en route to Boston on a fundraising trip, added that the timing of many donors' gifts will be affected as people look out for their own economic well-being.

"We are not going to stop having the conversations, but there are still some people that have done very well recently," he said. "People might have to modify the pace of gifts and pull back, but in the long term we are off to a great start and I am sure we will be successful. It might just take a while longer to recover from this market turbulence."

He added that, compared to its peers, Middlebury remains very financially strong.

"For the previous four years we have been successful in raising more money than almost any other liberal arts college in the country," he said.

Two of the College's three main sources of revenue, return on the endowment and gifts, are likely to fall short of targets set in the multi-year financial model of the College's Strategic Plan. The third source of revenue, the comprehensive fee, cannot be increased enough to offset shortfalls from the other two areas.

"We do not have the leeway to increase the comprehensive fee, and we are at the ceiling as far as I am concerned," Liebowitz said in a telephone interview on Sept. 17. "We can't afford to dump more of a burden on the families."

As a result, any new construction project will need to be funded by donors and provide additional endowment support so that it does not negatively impact the operating budget. In the meantime, Liebowitz has asked the College's vice presidents to identify ways to reduce the operating budget.

"I am confident," he wrote, "that, working together, we will ensure our financial equilibrium by closely reviewing our expenditures and focusing our resources on the College's priorities. The purpose of getting a committee together is to try and reach a consensus on what we should be reducing going forward."

In the meantime, however, some students may find it hard to imagine potential spending cutbacks. Ryan Kellet '09, creator and editor of Middblog, wrote that students should know that the College is not so far removed from the fortunes and failures of Wall Street.

"Heck, if students can get so riled up about no juice or trays at the dining hall, then what happens when something of greater importance goes away?" he wrote in a Sept 10 blog posting. "There will surely be whining and complaining, but students should really understand that despite Midd's reputation as a sheltered bubble, we really do feel the effects of the outside world. Yes, we will have to suck it up and turn our focus inward."

-Additional Reporting by

Cloe Shasha, Staff Writer