“[We’re trying to address] how we move forward from where we are and how we can protect the strength of the College for future generations,” he noted. “We’ve attempted to be as transparent as possible and have tried to give you a window into our heads as well as a sense of the likely magnitude of the challenges ahead.”
After Zeitlin’s opening comments, Bill Ford ‘83, chair of the Board’s Investment Committee, made a presentation about the global economic downturn and how it has affected the College’s endowment. He explained that there has been a slowdown in global GDP growth caused by de-leveraging. “To say that last year was bad for the market would be an understatement,” he remarked. “In 2008, the U.S. stock market declined by 40 percent. It was the worst year since 1937 for the S&P 500.”
This economic turmoil has caused the College’s endowment to fall by 26 percent, which in turn has caused other fiscal problems to arise. Ford remarked that the cash required by the operating budget, debt service and capital calls to investment managers has increased into the $100-$150 million per year range, and that the non-marketable investment portfolio cash flow is negative and has unfunded commitments of over $400 million. The real challenge for the College at this time is protecting the value of the endowment despite rising capital needs and an increasing “spend rate.”
Ford noted that the College’s endowment has performed particularly well over the past 10 years, even through the bursting of the technology bubble in the late 1990s. “We had outstanding performance after the tech crisis [despite its negative effects],” he said. “During the tech bubble, diversification really helped us. However, the dip in performance at that time was nothing compared to what it is today [as a result of the present economic disaster].”
At the end of his presentation, Ford discussed the primary foci of the Board’s Investment Committee: managing liquidity, proactively managing the non-marketable investment portfolio, increasing an emphasis on risk management, maintaining portfolio diversification and engaging with the College’s endowment’s 75 investment managers to ensure that they are acting wisely.
After Ford’s presentation, the head of the Board’s Budgetary Committee, Steven Gluckstern ’72, discussed how the College’s budget relates to the decrease in the endowment. Based on the assumption that the College’s endowment will have decreased by an overall 30 percent by the end of the year, that there will be no growth, positive or negative, in the endowment in the following year, and that the endowment will see a five percent positive return in the year after that, he explained that it is imperative that the College endowment’s spend rate stabilize for the long-term and that budgetary cuts will be necessary in order to accomplish this. “The College’s 2009 budget is $155 million,” he remarked. “The adjustments to the budget made so far are not enough to bring the spend rate down and maintain it at five percent. The pattern of growth that has sustained us for the past 10 years can’t sustain us for the next 10 years.”
When, during the meeting’s question and answer section, a member of the audience asked if the sacrifices to which Gluckstern alluded in his presentation meant that there would be cuts in faculty appointments and financial aid, consistently the two largest components of the College’s budget over the past 10 years, he said that such an assumption would not be reasonable. “What we have to do is temper the growth rate of the budget,” he said. “This means that over the next 10 years, we may not have growth in the areas in which we would like to have growth.”
One individual in the audience asked the Board about its stance on making socially responsible investments as opposed to merely looking for profit from wherever it might come. “It is something we’re talking about,” said Zeitlin. “Being socially responsible is incorporated into our thinking. [For instance], we maintain a list of companies that do business in Sudan and we make sure that we don’t invest in them.”
At one point, the discussion turned to an analysis of the College’s core values. “We have had this discourse in our Board meetings,” said Zeitlin. “The Board has a deep conviction to keep diversity, as it meaningfully impacts the character of the College. The Board also has a commitment to the faculty and how that faculty can be nourished in terms of teaching and scholarly support.”
A College staff member later asked the Board about how budgetary cuts might directly affect her and her colleagues. “We don’t know specifically,” remarked Zeitlin. “There will probably be a slow rate of growth and compensation. [The specific cuts that will be made] will come from discussions with various constituencies on the campus. It has to come from each of you.”
As a final question, one student asked the Board about how the College’s students can help cope with the crisis. “First, by engaging in this conversation,” said Zeitlin. “Secondly, by engaging in it from the perspective of what you believe the values of this institution to be. [Thirdly], as you develop these views, take steps to show that you are living in a way that is consistent with them.”