I need to clarify our previous discussions of the return of the endowment for fiscal 2008, which ended on June 30. The actual return was -1.09%, not the -5% that I initially thought. Comments:

1) Without knowing the answer, I predicted that the endowment’s returns was -2.4%, just on the basis of the asset allocation. Off by less than 1.5%! If only there were an Intrade contract I could have bet on.

2) The Record article is poorly written. I don’t expect writer Sam Weinreich to understand endowments, but why can’t he be smart enough to call up someone (like me) who does and is willing to explain it to him? I don’t want to pick on Weinreich too much, yet this behavior is endemic to Record reporting on many topics. The key issue, as HWC pointed out, is the confusion between the actual dollars in the endowment and the investment return generated.

Actual dollars are affected by spending but they do not change the College’s overall wealth. If the College takes $50 million out of the endowment and buys a new building, then our wealth is unchanged. The building is still worth $50 million. But if the value of the investments in the endowment go down by $50 million, then that represents a loss in actual wealth.

3) The difference between -5% and -1% may not seem like much, but, in the context of an entire year and $1.9 billion dollars, it is worth noting.

4) If any of the students in Purple Bull want an advantage in their job or internship hunt, they ought to reach out to me to work on some Williams-related projects. This would teach them something that other applicants don’t know and give them something to talk about during interviews. It would be relatively easy to create a mock-up of the Williams endowment which updated daily, even intra-day. Why aren’t there students interested in these sorts of projects? Am I that scary?

5) From the Record:

This substantial withdrawal from the endowment was coupled with a $19 million or 1.09 percent decline from investing activities. Collette Chilton, chief investment officer, links this drop to the fund’s exposure to both U.S. and global equities. U.S. equity markets fell 13 percent according to the Russell 3000 in 2008, while non-U.S. equity markets dropped over 10 percent according to the MSCI EAFE index. However, these drops were mollified by positive returns in real assets. “The endowment return was helped in fiscal 2008 by investments in real assets, such as commodities, certain private equity investments and real estate.”

Hmm. Seems like the College uses Russell 3000 (MSCI EAFE) as its US (International) equity benchmark. Both are reasonable choices. I wonder what it uses for emerging markets? Commodities and real estate have both been crushed since June 30th, along with the equity markets. Could the Williams endowment be down 20%? Easily. Time to cut some costs!

But, first, how about some transparency? For each of the asset classes in the endowment, we need to know what the benchmark return was and what the Williams return was. The difference tells us, obviously, whether or not Williams is picking good managers. If the Record will ask for this data, I will gladly explain what it all means.

Facebooktwitter
Print  •  Email