The last major bear market in the US bottomed on October 8th, 2002. How did things look to Williams on that date? See here.

Endowment has shrunk, outlook still optimistic
Archived Edition: October 08, 2002

The College’s endowment has decreased by approximately $300 million since June 30, 2000. As of June 20, 2002, the College’s endowment stood at $1,033,983,766, while total investments, including the endowment and other miscellaneous financial resources, were valued at approximately $1,189,003,764.

Christopher Wolf, manager of investments and treasury operations for the College, acknowledges the recent decline in the value of the endowment, but also “prefers to focus on the long-term.” Within the last 10 years, the College received a compound annual average return of approximately 15 percent.

An annual return of 15% is the very definition of “unsustainable.”

Each year, the College “plan[s] on using [between] four and five percent of [its] endowment…on average we assume [that] we will earn nine percent on our endowment and receive new gifts to the endowment of one percent of its value,” Catharine Hill, provost of the College, said. “These past two years, we experienced negative returns … leading to declines in our endowment. But given the very high returns during the late 1990s, our endowment is still very strong and our average return over the last decade [has] exceeded our [expectations].”

Indeed. But spend enough time in a bull market and your expectations have a way of changing. Is it plausible to assume that new gifts (including capital campaigns?) will equal 1% of the endowment annually? I don’t know.

The Finance Committee of the Board of Trustees is charged with managing the disparate assets that belong to the College that are generally referred to as the endowment. While planning to increase fundraising efforts to support campus renovations, the Committee expects the endowment to earn nine percent interest each year despite the current state of the nation’s financial markets.

The College now only forecasts 8%. Are we more realistic? Depends of what inflationary expectations are built into that nominal forecast. If the old inflation expectations were 4%, the forecast real returns are unchanged at 5%.

“Due to our financial strength and extensive alumni network, the College has been able to invest in world-class money managers over the years, including private equity partnerships and hedge funds,” said Wolf.

Exactly right. In the old days, connected trustees ran the endowment and made sure that Williams got into some great deals. Now Collette Chilton runs the endowment. Do the trustees and other alums in finance spend as much time on the endowment as they used to? No. Do they work as hard to get Williams into the best deals? Maybe, maybe not. The less power/responsibility you give someone, the less dedicated to the project they become.

At what point will Williams consider closing the Investment Office in Boston and moving that responsibility back to Williamstown? You don’t need to fire anyone. Employees ready to move would be welcome to do so. But, if we are serious about cutting costs, then high-priced Boston real estate is a good place to start. The Investment Office would function just as well (and perhaps better) in Williamstown as it does in Boston.

The College has already allocated much of the funds needed for the large scale renovation projects scheduled for the coming decade. Wolf emphasized that it is important to “keep in mind that while [the College’s] investments increased roughly 15 percent a year for the last ten years, spending only increased six percent a year…during that period we were ‘saving for a rainy day.’”

Has the College done enough saving for a rainy days in the 6 years since? Not that I can see. The College was smart (or, at least, accurate) to be “optimistic” at the very bottom of a vicious bear market. Is Williams optimistic today? Should it be?

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