Good News: The Endowment is Up 12%

THIS ISWHY

Wesleyan’s annual Financial Report was published last week, and the endowment is up 12%, if you exclude the $28 million siphoned off to pay for current operations, but add the pledges from the “This Is Why” campaign. Additionally, the university took in $11 million more in income than it spent in the fiscal year that ended last June. This should be good news for all those who are disgruntled by the need-blind situation. We’re on our way to having enough money to spend on basic operations, and maybe return to need-blind. This won’t happen soon, but it’s at least a positive step forward.

In Fiscal Year 2012/13:

  • Alumni, parents, friends, lovers gave $42 million in cash to Wesleyan, an $11 million increase from the prior year
  • 46% of alumni donated funds
  • $55 million in new gifts (cash, pledges and bequests)
  • Financial aid totaling $55 million increased approximately 7%, resulting in an undergraduate tuition discount rate of 36%, an increase from 35% in FY 2011/12
  • A total of $308 million toward the campaign’s overall goal of $400 million

An additional tidbit from Ron Medley ’73 on an alumni listserv:

The official figure [of the endowment] is $689 million, up from $616 million in FY12. But, apparently, that does not take into account approximately $72 million in cash and money market investments that just happened to be lying around due to “the timing of year end cash flows.” [p.3]  Now, that may just be accountant-speak for “already been spent,” but  in my house, if I find money under the couch – that’s part of _my_ endowment.  Either way, it is fun to contemplate the possibility that if you add the university’s “loose change” to what is technically the endowment, the figure could be as high as $760,000,000.

Chart on annual cash gifts:

Screen Shot 2013-11-06 at 12.30.30 AM

So what does this endowment increase mean for things like need-blind admissions and other university operations? Last year, the relatively small endowment was cited as partially responsible for the University’s need-blind policy change. Chief Investment Officer Anne Martin indicated that “one reason that some schools can afford to be need-blind is because they have a big endowment, and therefore the endowment can supply more of the operating budget, which includes financial aid.” Additionally, when the endowment is small, the Investment Office draws less from it to help with operational costs so that positive returns can be ensured for the University.

Since there was less money in the operating budget last year, according to Martin, the University was forced to make cuts to all “non-essential budget allocations.” The fact that there was nothing left to cut without damaging the quality of the education partially informed the administration’s decision to end its need-blind policy. Now that Wesleyan has made some progress in growing the endowment, it is unclear if we are back on the path toward need-blind financial aid. Realistically, it’ll probably take some more time, and we’ll probably need more money both in the operational budget and in the endowment. On the plus side, we can start to have more leeway on the things that are deemed non-essential budget allocations.

Thoughts? Concerns? Any economists reading this who want to solve our problems?

Related Posts:
Wesleying: The Wrath Update 
President Roth, I Expect Your Efforts Redoubled
Open Forum on the Endowment [Liveblog]
Need Blind Wes: Updates and Organization
Trustee Occupation Aftermath
Need Blind Activists Storm Football Game
Argus: The Endowment Faces Major Challenges
University Endowment Increases by $4 Mil in First Part of 2012 Fiscal Year
Wesleyan 2020 Blog: Wesleyan’s Endowment
MRoth Blog: Wesleyan Fundraising Campaign: This is Why
Wesleyan Endowment FAQ

  • Ron Medley `73

    Wow, this turned into a much livlier discussion than the one on the alumn listserv, where my post kind of died. :( I would like to clear up a few points. Brian: how you account for the relatively small amount of money (between 5-5.5%) withdrawn from the endowment every year in order to help run the university makes a difference in whether you are talking about the endowment itself as a snapshot of the university’s wealth as of June 30th or wherther you are talking about the rate of return on the portfolio (ROR.) Two slightly different things. There are valid reasons for wanting to know both, but, if you want to know the ROR you would obviously have to put back the money you just withdrew from the pot in order to get a more accurate picture of how the portoflio managers did in any given year. Twenty-eight million dollars would probably add a point or two to the ROR. As for JCU’s question about the >$300 million collected by the This Is Why campaign so far, don’t expect a dramatic increase in the size of the endowment, at least not right away. Typically, the super huge donations say, over a million dollars) are redeemed (collected) over a period of time, perhaps as long as six years after the initial “pledge”. What that means is that the pledges made during the early period known as the “quiet phase” should start kicking in about now and perhaps that is what is being reflected in this year’s increase. This is why (no pun intended) small donors like you and I are so important – we tend to pay in cash. In any event,with any luck, and a healthy economy at its back, the Wesleyan portfolio/endowment should see healthy advances over the next ten years.

  • KatCo

    Futurama has made me incapable of trusting the phrase “good news”.

  • JCU

    Probably a stupid question, but: why isn’t that $308 million that we’ve raised towards our $400 million goal immediately deposited into the endowment? Are we waiting until we reach $400 million?

    • alum

      Not a stupid question at all. Money from the campaign has indeed gone into the endowment, but the campaign also includes the Annual Fund (which is spent yearly and does not go into the endowment). Additionally, funds taken out of the endowment will somewhat counter the amount going in, so the endowment hasn’t had a net increase of $308 million for those and other reasons.

  • Brian Glenn

    This subject is very complicated, and it’s very dangerous to present it in the simplified manner that you have. Firstly, it’s only up 12% if you exclude the amount the university took out, but why would you do that? What matters is the actual amount in the endowment.

    Second, you can’t count pledges to the value of an endowment. The value of the endowment is the value of the endowment as of a certain date, usually June 30. Wesleyan adds pledges to make the endowment look larger than it is, but Wesleying should be more savvy than that.

    Third, is 12% a lot or a little? We will not know for another year until our peer group posts the values of their endowments as of June 30, 2013. If our peers saw their endowments grow by an average of 3%, we might be pleased with our growth, but if theirs grew by an average of 18%, then ours underperformed.

    Finally, as to being “back on the path toward need-blind financial aid,” the reporters at Wesleying should know this fact very clearly: THERE IS NO PLAN TO RETURN TO NEEDBLIND. Period. It is not under consideration in the current ten year plan.

    Brian J. Glenn ’91

    • Samira

      Of course this is a complicated subject. This post is meant,
      foremost, as a basic summary of the Financial Report, and what it *might* mean for need-blind (which is the automatic connection a Wes student might make to the endowment). It was never stated in the post that we would definitely return to need-blind, but that it was a possibility at some point based on how the situation was described according to the Chief Investment Officer.

      I wasn’t highlighting the increase in the endowment in
      comparison to our peer institutions and whether or not we were doing wonderfully financially compared to them. Any increase, I think, is positive in the short term because it shows that our fundraising campaign has been successful in the past year (at least according to the info presented in the report). I think it’s important to highlight the pledges we’ve gotten because it shows that “This is Why” (a campaign that has been the butt of many jokes on campus) is actually working.

    • alum

      No – as stated in the report, the $689 million value is AFTER the amount spent from the endowment is taken out. So the 12% increase is after accounting for spending (which is the standard practice of endowment reporting for colleges, as far as I’m aware).

      I’m not sure how common it is among colleges to include pledges in endowment figures, though.

      Wesleyan’s 12% return is smack in the middle of most Ivy League endowment returns, as reported at http://www.thedp.com/article/2013/10/penn-leads-in-endowment-returns-across-ivy-league. Of note is fellow NESCAC school Bowdoin, which had a 16% return this year and topped $ 1 billion, but they seem to be an outlier for this fiscal year. So it seems 12% is decent, overall.

      As for need-blind, I agree that there needs to be transparency about a target endowment goal. I fear there is no (publicized) plan because fundraising projections don’t have us getting there, even with the campaign. If you consider how far behind we are to Amherst and even Vassar, it’s not that hard to believe that even this campaign won’t get us to the endowment level needed to fund need blind. What the admin/Board should do is come out and say it. If there is no plan, tell us why. It’s plain to see why Wesleyan can’t afford it today, but where does the admin see Wesleyan in 10 years? How close then?

  • jarsilver

    Can you elaborate on ” there was less money in the operating budget last year”? Both revenues and expenditures were up in 2012-2013 over 2011-2012: http://www.wesleyan.edu/finance/budgetplanning/training/2012_13BudgetReport.pdf

    • jarsilver

      I should say that this matters because it it calls into question whether the University was objectively “forced” (as you write) into making cuts to the financial aid budget, which is what the need-aware policy really is. IIRC, past budget surpluses were, by the University’s discretion, allocated toward future debt payments which will not be made until 2023.

      • Samira

        There was less money in the operating budget according to Chief Investment Officer Anne Martin, as stated in this: http://wesleyanargus.com/2012/10/01/endowment-in-disarray/. A follow up post going through the details of the financial report/how our operational budget is actually spent may be needed.

    • alum

      My guess is most likely due to lower endowment payout. The amount of money spent from the endowment is based on the endowment’s average value over a period of time, which ikely included the bad years after the recession. Therefore, that results in less money supporting the budget from the endowment.

      • jarsilver

        Actually, the payout from the endowment is less because the Board voted to reduce the yearly draw from 5.5% to 5% over a period of five years. I believe the endowment has been consistently growing since the recession ended.

        • alum

          Agreed