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2016 Investment Report V

Let’s spend five days reviewing the latest annual report (pdf) from the Investment Office. Greatest hits commentary on related topics include here, here, here and here. Today is Day 5.

I have praised the Investment Office (and Collette Chilton) for their successes and criticized them for their pay and for the lack of transparency over performance and process. What is left to say? My (forlorn?) hope is that, over the next few years, the College can improve on the dimensions that it ought to improve on. We can be as transparent about our managers as Grinnell and about our benchmark as Amherst. We would then be in a better position to discuss more substantive issues with regard to endowment management. In the meantime, here are some final thoughts:

1) New Chief Communications Officer Jim Reische was kind enough to investigate whether or not the College’s policy with regard to transparency in the calculation of the performance of the benchmark portfolio has changed. It hasn’t. Thanks to Jim for asking!

2) Unless others object, I will probably make this series an annual lecture, a topic worth revisiting each year. Although we have regular readers at EphBlog who have been with us for more than a decade (Hi Frank!), many of our readers (mainly students and their parents) are new each year, so it makes sense to revisit these important topics, updating them with any changes in College policy.

3) What other topics would readers like to see a similar deep dive into? The latest Common Data Set (pdf) is available. And we haven’t gone through recent Form 990s or the College’s financial statements in a couple of years.

4) Kudos to Managing Director Abigail Wattley ’05 for offering this excellent Winter Study class:

POEC 23 Endowment Investment Management
This class is designed to provide students with an overview of endowment and investment management and is taught by members of the Williams College Investment Office. The Investment Office is responsible for overseeing Williams’ $2.4 billion endowment. Through presentations, discussion, readings, and project work, Winter Study students will gain a better understanding of the various components of an institutional investment portfolio, how it is managed, and how investment managers are selected and monitored. Students will learn about portfolio theory as well as specific asset classes such as global equities, hedge funds, venture capital, buyouts, real estate, and fixed income. Students are expected to attend all on-campus classes (approx. 6 hours/week) and complete a set of relevant readings, a case study exercise, journal entries, and a final project. Students will also be required to complete an introductory excel course.

Does this mean that the Investment Office is no longer offering its usual Winter Study internship? I think that that would be an OK trade-off. Do we have any readers in the class? If I can get permission to share a copy of the syllabus, I will.

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2016 Investment Report IV: Pay

Let’s spend five days reviewing the latest annual report (pdf) from the Investment Office. Greatest hits commentary on related topics include here, here, here and here. Today is Day 4.

We dramatically overpay the folks who work in the Investment Office, primarily Collette Chilton but also Bradford Wakeman. The Record ought to write an article about this. Here are the questions they should ask along with my commentary.

The latest Form 990 (pdf) reports that:

bonus

Q: How many people in the Investment Office are eligible for bonuses? What is the formula used to award those bonuses? How much money, if any, in total bonuses was paid out last year? [See here for more background. The College will try to claim that releasing this information would violate the privacy rights of College employees. But note that the questions do not ask for the specific amounts given to named individuals. We just want to know how many and how much in total. Privacy concerns do not prevent Williams from releasing this data.]

Q (for Collette Chilton): If the College decided to stop paying performance bonuses, would you work less hard? Would anyone on your staff? [The College worries that Chilton and other (how many?) investment professionals won’t work hard enough even though Williams is paying them hundreds of thousands of dollars per year. So, in addition to all that guaranteed money, we need to pay them extra bonuses or else they’ll —- what exactly? Spend all day at the movies?]

I think that this is the sleaziest arrangement at Williams today and have been complaining about it for years. How did this happen? Tough to know. I am still trying to get the inside story. My guesses/speculation:

a) Both previous president Morty Schapiro and key trustees were in favor of starting an Investment Office and other steps for turning Williams into Yale.

b) No one worried too much about Chilton’s compensation. The Trustees, of course, see their role as more supervisory. They don’t set salaries. There may have been a head-hunter or compensation consultant involved. Morty, while in theory worried about the College’s overall budget, had no real incentive to pay Chilton less.

Never forget that Morty, for all his many wonderful qualities, is not — How to put this politely? — immune to the siren song of worldly wealth. It is not out of the goodness of his heart that he serves on the board of MMC. It was not an accident that he failed to take a pay-cut, unlike presidents at some other schools, during the budget crisis. It is not irrelevant to him that the Northwestern job pays around twice as much. It was not via random motion that his annual salary increased by hundreds of thousands of dollars during his time at Williams.

So, subconsciously or not, Morty would realize that a proposal to pay the new Chief Investment Officer substantially more money than he was then making would only provide a (dramatic?) upward push to his own compensation.

c) This deal was made in the bubble years. There is no way that Chilton could find a comparable job paying this much money today. Even for 2006 (when Chilton was first hired), the compensation was excessive. Professionals I quizzed felt that someone with Chilton’s resume — modest compared to others in the field — would be somewhere in the $300,000 to $500,000 range.

Consider how the actual numbers have changed from 2009 (pdf) through 2015 (pdf):

pay2009

pay2015

Collette Chilton’s pay has almost doubled in 6 years. She now makes $1.3 million dollars! Bradford Wakeman’s total compensation has gone from $360,000 to $639,000. And it is not like Wakeman is some sort of financial genius. Recall our discussion from when he was hired:

Consider a presentation by Wakeman to a risk meeting. His content seems sensible enough, but the topic (making a better 401(k) plan for Lucent) has almost nothing to do with running a major endowment.

That’s fine, perhaps Wakeman knows about other stuff as well. But I laughed out loud when reading the last slide.

Outside experts have noted, and applauded the changes Lucent made to its 401(k) plans.

Nobel laureate William Sharpe notes the changes Lucent made to its 401(k) plan: “better aligns their DB and DC plan methodologies.”

James Palermo, Vice Chairman of Mellon Financial Corporation, observed that: “Lucent is on the cutting edge of our client base with respect totreating their 401(k) plan in the same manner as their defined benefit pension plan.”

Stanford Law School Professor and co-founder of Financial Engines, Joseph Grundfest, commented that: “Lucent has made an important step in fiduciary oversight by implementing consistent management practices from plan to plan.”

Fidelity Investments recognized that: “Lucent was early in this initiative.”

Wakeman is quoting a bunch of vendors who sold things to Lucent, for whom Lucent is a customer, people who will say nice things about Lucent even if (especially if!) they think that the people in charge of the Lucent pension fund are the dumbest of the dumb.

And, as best as I can tell, Wakemen is using these quotes without a bullet point of irony. He really thinks (?!) that William Sharpe’s complimentary testimony about Lucent is meaningful information to his audience even though his audience knows that Lucent is paying thousands of dollars to Sharpe’s company: Financial Engines. My hope is that Wakeman is not this clueless, that he showed the slide but made a joke about the reliability of the testimony cited. That, anyway, is the best case scenario.

The Record should do an article about Chilton’s (and Wakeman’s and the entire investment staff’s) compensation. Don’t the editors believe in muckraking anymore? I bet that some of the more left-wing Williams professors would provide good quotes, either on or off the record.

What should be done? The College ought to close the Boston Investment Office. (Read the whole comment thread for details and background.) Most/all of the senior investment professionals (like Chilton) would decline to move to Williamstown. Problem solved, without any nasty firings or salary cuts.

In the meantime, it is hard to take seriously any of the mewlings about the problems of increased income inequality in the US — which is, sadly, a real problem — from our progressives friends on the Williams faculty if they can’t even be bothered to ask questions about the out-of-control salaries/bonuses that Williams itself pays out to some particularly undeserving members of the 1%.

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2016 Investment Report I

Let’s spend five days reviewing the latest annual report (pdf) from the Investment Office. Greatest hits commentary on related topics include here, here, here and here. Today is Day 1.

Let’s begin with the good news. First, the Williams Investment Office, led by CIO Collette Chilton, has done a solid job over the last decade, as EphBlog predicted in 2007.

How competent is Chilton herself? Informed commentary welcome! I have spoken with people who have run money for her and the consensus opinion is that she is a solid professional. She has experience selecting and monitoring investment managers

More importantly, she avoided the temptation of the Harvard model and has not tried to manage any of the money directly. Returns have been solid:

endowment

As long as the College’s endowment is somewhere in the middle of the pack when it comes to trailing 10 year returns, alumni should not complain about performance. (We will have many other things to complain about over the next four days.)

Second, the future of the endowment seems assured in that Managing Director Abigail Wattley ’05 will make a wonderful successor to Chilton someday (hopefully) soon. Recall my advice from 10 years ago:

The biggest risk issue in any asset management situation is the option value to the asset manager. Will Chilton take on the appropriate amount of risk, consist with her guidance from Morty and the trustees? I hope so. But doing so might not be in her best financial interest. Imagine, instead, that she “shoots for the moon,” that she levers up the endowment and invests in the riskiest stuff available. If she is lucky, she (and the College) will win big. Then the fawning profiles from the New York Times will roll in and she will have the option of starting her own hedge fund and (trying to) generate serious personal wealth. Heads, she wins.

And, if it’s tails — if those risky bets don’t pay off, if our endowment performs poorly — Williams loses. Chilton, probably, keeps her job. She blames factors beyond her control. And, it will be hard for anyone to know what really happened.

Yale, smartly, hedges this risk by hiring someone like David Swensen, someone whose commitment to the success of the institution is beyond question. Williams could have followed suit, could have selected an Eph Swensen, a younger graduate with finance experience and a deep connection to the College, someone already living in the Williamstown area or eager to move there. Someone committed to Williams for life, and not just until a better job comes along, until the commute to Williamstown becomes too annoying. Such candidates were available. Instead, the College chose Chilton. I hope it works out.

It has worked out. I may have overplayed the risk of Chilton pulling a Meyer. And, certainly, given Meyer’s implosion at Convexity among other changes, there are many fewer opportunities for successful endowment CIOs outside of the CIO market. But there is no doubt that Chilton has done a wonderful job of selecting and then mentoring Wattley, someone who is universally praised by the Investment Committee Ephs I have talked to. Wattley is married to Kevin Kingman ’05 and is as committed to the long term success of Williams as anyone. With luck, she will be managing the endowment for decades to come.

Third, although I would still prefer that the Investment Office were located in Williamstown, Chilton (and Wattley?) have done a great job in involving students and recent graduates in the office via (at least) three mechanisms.

  1. Full-Time Investment Analyst Program: A two-year position open to graduating seniors
  2. Summer Analyst Program: Summer positions open to rising juniors and seniors
  3. Winter Study Program: A winter study class open to sophomores and juniors

I have spoken to Ephs in all three programs, all of which are well-done. (One suggested improvement is that Chilton/Wattley ought to encourage younger Ephs to network more in the Boston financial community.) If Williams (like Middlebury or Smith) were to outsource the management of its endowment to a place like Investure, these programs would not be possible.

See! EphBlog can praise the praiseworthy! Relative to its peers, the Williams Investment Office in general and Collette Chilton specifically is just as competent and professional as, for example, the Wiliams English Department or Career Center. Kudos to Chilton and to the Trustees who selected her. Stand by for four days of (constructive!) criticism starting tomorrow.

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Library Streaking & Life Safety Issues

An all-student e-mail from Steve Klass and Sarah Bolton begins:

Students streaking through the library during Reading Period has been a tradition for many years. We’d like to call your attention to a couple of significant risks involved with it and ask you to reconsider this activity.

Entire e-mail is below the break. Comments:

1) When did the streaking tradition start? Presumably it was after co-education began in the early 70’s . . .

2) I was surprised at how big a deal it has become:

The streaking in Sawyer Library during last December’s Reading Period put a huge number of people at great risk of bodily injury. Thanks to social media, the building was well beyond fire code capacity by the time the streaking began. The marble steps and connecting walkways on the upper floors were absolutely jammed and impenetrable, blocking all egress. Students leaning over the railings on those connectors were crushed up against the waist-level restraining walls, putting them in danger of breaking through or falling over the railings.

Was it really that bad? Can anyone send us a picture (not of the streakers, obviously, but of the crowding)?

3) Will this plea cause students to change the tradition? Predictions welcome!

So, we ask you to please take the well-being of others to heart and come up with another way to achieve the same fun objectives in a safe and responsible manner.

The obvious replacement would be an outside event, perhaps a circular route around the new green space at the center of campus, or perhaps around the Science Quad. Suggestions from readers?

Entire e-mail below.
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adkins Supports Transgender Bill

EphBlog favorite justin adkins writes:

Many people have called the Transgender Public Accommodations Bill (SB 735 & HB 1577) the “Transgender Bill” or as you referred to it in 2010, the “Bathroom Bill.” However, this bill is neither. This bill is about access to basic accommodations for all people living and visiting the Bay State.

As a transgender Bay Stater my trans community has to think about our access to basic accommodations, access the rest of the great people of Massachusetts take for granted. Sixty five percent of transgender people in Massachusetts report experiencing discrimination in an area of public accommodation.

Really? Color me skeptical. Perhaps, in some poorly designed and statistically dubious poll, 65% report something, but I have my doubts as to how wide spread such discrimination is in Massachusetts. What do readers think? Are there really lots of restaurants and hotels that discriminate against transgender folks? Specific examples would be useful.

Gender identity is “a person’s gender-related identity, appearance or behavior sincerely held as part of a person’s core identity.” Your lack of commitment, and action, to make sure that all people living and visiting our state are protected from discrimination leaves people with only your previous stance to fall back on.

Here it is 2016 and you just look out-of-touch and behind the times. Our sports teams support this bill, your hometown of Swampscott supports this bill, and your former employer, Harvard Pilgrim Health Care, has come out in support of the legislation as well. My employer, one of the largest in Berkshire County, supports this bill too!

Williams supports this bill? Could someone point us to a formal statement by the college and/or the trustees? Again, I have my doubts. As a rule of thumb, Williams does not view itself, as an institution, as needing to take a position for or against every bill that comes up in the statehouse.

Of course, it may have in that case. If so, that would be a problem. Why should Williams, as a non-political charity, be taking issues on political controversies that don’t directly affect it? (Taking positions on, for example, changes in student aid funding is defensible.) There is no more reason — beyond the vanity and narcissism of certain administrators — for Williams to have a position on this proposed state legislation than there is for Williams to have a position on Obama bombing Syria. Individual Ephs can, and should, voice their opinions, but the College should stay neutral, should focus its efforts on its mission.

Did you know that I could be denied a hotel room, or a seat in a restaurant, just because I am transgender? Having to think about where I can travel within our state is exhausting.

Drama, much? When was the last time that adkins was denied such an accommodation? How common are such denials?

When my friends invite me to concerts, dinner, or a movie they rarely think that I might be denied access to the venue.

They also rarely think about you being struck by lightning, which is probably about as likely.

We need to be clear, as a state, that we don’t allow discrimination based on gender identity.

Hmm. By “clear” do you mean empowering men with guns to enforce this loss via threats of violence and imprisonment? adkins has written, evocatively, about the problems of mass incarceration in the US. But how can someone be both concerned about mass incarceration and, at the same time, want to create more laws that can (and will!) be used to, potentially, imprison more citizens? If you are really concerned about the prison industrial complex — as both adkins and I are — then you want fewer laws, not more.

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Investment Report

The 2015 Annual Report from the Investment Office (pdf) is available. Comments:

1) Should I spend a week dissecting this? Let me know in the comments.

2) If you are the Record reporter assigned to cover this, please be professional by contacting at least one critic of the Investment Office. The last few Record overviews on this topic have been less hard-hitting than the typical high school newspaper.

3) Background readings: one, two and three.

4) I am probably the Investment Office’s least popular Eph, going back to this (brilliant?) blog post 8 years ago.

5) Collette Chilton (not satisfied with her current $1.3+ million pay check) is looking for a raise! How else to explain this new (I think) line from the report:

In dollar terms, our added value for fiscal year 2015 was over $100 million.

Really? I have my doubts. And it would be pathetic for the Record to fail to determine exactly where this claim comes from.

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Changes in International Admissions?

Have there been changes in the quota with regard to international admissions? In January, I asked Jim Kolesar:

Nine (!) years ago, you kindly answered my questions about international admissions at Williams and, specifically, about the 6% goal/target that the College then employed.

Has that policy changed?

I ask because there was a big jump in international enrollment for the class of 2018, to 49 from usual numbers in the 30s. Of course, this could just be random fluctuation, but at almost 9% of the class, it is a big move up in percentage terms.

Links added. Jim kindly responded (and gave me permission to post):

The 49 figure is best understood as a result of the randomness of yield.

Fair enough. Knowing how many accepted students will choose Williams is a non-trivial problem, especially in situations, like international admissions, which feature significant change. It is harder to forecast yield from Shanghai than it is from Andover.

But then I read this news:

Nesbitt expects the final [2019] class to be composed of 38 percent of American students of color. He expects the class to be 12 percent black, 15 percent Asian American, 11 percent Latino and one percent Native American. Additionally, nine percent of the class is expected to be international students. First-generation students, meaning neither parent graduated from a four-year college, will amount to 16 percent of the class.

Class size is usually 550. Nine percent of 550 is almost 50. Yield randomness might explain 50 international students for the class of 2018. It can’t explain the 50 in both the class of 2018 and 2019. Don’t believe that something is going on? Consider the recent time series:

2013: 31
2014: 37
2015: 38
2016: 31
2017: 37
2018: 49
2019: 50 (estimate)

Number prior to the class of 2015 were (always?) in the 30s.

Has there been a policy change? If not, what explains the increase?

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Sexual Assault Report VII

The most recent annual report on sexual assault is out. Let’s spend 10 days talking about it! Today is day 7.

Over the 2013-2014 school year, the college received 14 reports of sexual assault, as well as one of dating violence and stalking. Of these 15 cases, five were brought forward for adjudication within the college’s disciplinary process. Four students were found responsible for violations of the college’s sexual misconduct policy, and one was found responsible for violations involving dating violence or stalking. All five of these students were separated from campus. Two students were expelled, and three were suspended. The average length of suspension was two years. One student brought a case forward through the police and the district attorney’s offices. Ten students who reported assaults during 2013-14 have chosen not to participate in disciplinary or legal processes as of this time. Of those, five worked with the Dean’s Office to arrange accommodations to increase their well-being on campus, including academic arrangements, housing changes, no-contact orders, and advisory conversations.

Comments:

1) Kudos to the College for providing this level of transparency. The more that the Williams community understands about sexual assault cases, the better.

2) We need more transparency, more details about each of these cases, about the exact complaint, the response and the judgment rendered. This is not hard to do! Consider one example from the latest report (pdf) from the Honor Committee:

A junior was accused of several dishonest actions relative to a paper. First, it appeared the majority of the paper was taken verbatim from a website without citation. Second, the student attempted several times to deceive the professor when he realized he had accidentally shared information that made it very likely that his plagiarism would be discovered. The student readily admitted that this was what he had done. The sanction was failure in the course with disciplinary probation of one semester.

Federal law (and common sense) require that the College not identify specific students. Agreed! But Williams could still tell us, for starters, the class years and genders of the students involved in sexual assault cases. (Isn’t the problem very different if all the accused are seniors than if they are all first years?) And more details on the cases would allow us all to judge whether or not the College is doing a good job. It would also provide guidance to students about precisely what sort of behavior is likely to get them in trouble.

3) Do readers find 15 cases shockingly low or shockingly high? If the 1-in-5 statistic were correct, we would expect over 50 cases a year.

3) Who remembers this wonderful piece of misdirection?

“No group, including varsity athletes, is over-represented among those accused of sexual assault,” Kolesar responded. He said the school’s athletic director, coaches and team captains “are very much partners in the broad campus work on the prevention of sexual assault.”

First, this is gibberish because, obviously, men are much more likely to be accused of (and guilty of!) sexual assault than women are. Second, the Record ought to follow up with Kolesar/Bolton to see if that claim is true for these 15 new cases. I would bet a great deal of money that male helmet sport athletes (football, hockey, lacrosse and (maybe) baseball) are overrepresented in this group. Third, it is quite possible that men from less elite backgrounds are over-represented, although this is more speculative. Certainly, the acceptable standards for interactions with young women at Andover and radically different than they are at big city high school.

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Sexual Assault Report III

The most recent annual report on sexual assault is out. Let’s spend 10 days talking about it! Today is day 3.

She [Meg Bossong ’05] also led the development of the CASA (Community Attitudes about Sexual Assault) survey, which got broad response. The CASA assessed the prevalence of sexual assault, stalking, and relationship violence at Williams as well as the helpfulness and availability of support resources and the community’s understanding of our policies. Nearly 1,400 students completed the extensive survey, and about 200 more answered some of its questions.

Really? I am surprised. A few days after the survey came I asked a dozen students what they thought about it. Not a single one had even bothered to open it! Any student who did open it would have been overwhelmed with the number of questions that it asked. It is shocking (to me) that 1400 students would have spent the 30 (?) minutes that completing this survey would actually require. If I were the Record, I would try to do some reporting on this claim, rather than continuing to serve as stenographer for the Administration. Comments:

1) Below the break is the e-mail announcing the survey.

2) Am I the only one surprised by the 1,400 number? Here (pdf) is the survey. It is 17 pages long! Here is a snippet:

survey

Since you are expected to consider a potentially different answer for each square in this grid, you need to make 60 different judgments for just this one question.

3) This wording smells of puffery. Why tell us “nearly 1,400″ instead of providing the actual number? I also have doubts about the distinction between “completed” and “answered some of its questions.” If a student answered every question except that crazy matrix, does that count as “completed” or not? I suspect that there was a lot of “rounding up,” that a student only needed to answer 80% (or 60% or . . .) of questions to count as “completed.”

4) In the spirit of transparency, the Administration ought to make the (aggregate) responses to this survey public. Once it does so, we can all take a look at the data ourselves.

5) None of this should be taken as criticism of Meg Bossong ’05, of whom I am a huge fan. There is no one better than she for the job of Director of Sexual Assault Prevention and Response at Williams.

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Noble in NYT

From the Bob Herbert in the New York Times five years ago:

That period right after college graduation is when young people tend to think they can set the world on fire. Careers are starting, and relationships in the broader world are forming. It’s exciting, and optimism is off the charts.

So the gloomy outlook that this economy is offering so many of America’s brightest young people is not just disconcerting, it’s a cultural shift, a harbinger. “Attention,” as the wife of a fictional salesman once said, “must be paid.”

Correct. If you can’t find a job doing X, listen to the market. The world is providing you with a (free!) reality check. Not enough people value X (or, at least, your attempts at X) to make it worth doing. Look elsewhere.

As jobs become increasingly scarce, more and more college graduates are working for free, at internships, which is great for employers but something of a handicap for a young man or woman who has to pay for food or a place to live.

“The whole idea of apprenticeships is coming back into vogue, as it was 100 years ago,” said John Noble, director of the Office of Career Counseling at Williams College. “Certain industries, such as the media, TV, radio and so on, have always exploited recent graduates, giving them a chance to get into a very competitive field in exchange for making them work for no — or low — pay. But now this is spreading to many other industries.”

Every time that Noble, or any College official is quoted in the New York Times, Williams wins.

These recent graduates have done everything society told them to do. They’ve worked hard, kept their noses clean and gotten a good education (in many cases from the nation’s best schools). They are ready and anxious to work. If we’re having trouble finding employment for even these kids, then we’re doing something profoundly wrong.

Well, the recession didn’t help. But, reading between the lines, the main problem, at least for elite students is a misunderstanding about the market realities for people, without any technical skills, interested in journalism and related fields. The jobs weren’t there in 2009, they are still not here in 2014, and they aren’t coming back.

Listen to the market.

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Williams Wants You

For future historians, I have archived below the job posting for Investment Officer, Marketable Securities.

Isn’t it a great thing that almost all the non-rich students in the class of 2015 will need to take out loans so that Williams can pay some fancy finance guy hundreds of thousands of dollars a year? Speaking for fancy finance guys around the world, I think that it is marvelous!

This job did not exist at Williams 6 years ago. And yet, miraculously, the endowment performed wonderfully. Why does it need to exist now?

Related rants here and here. Both highly recommended.

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Eph Loser?

No, I’m not about to denigrate another Eph.  Check out this great audition video by Williams custodial employee Tee Martin, who aspires (with a little help from his undergrad friends) to be on The Biggest Loser.  Good luck to Tee (and thanks to the student who tipped me off to this video)! [Part two of the audition can be found here].

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Faculty Governance Seminar: End of the Boston Investment Office?

This is the fifth installment in our week-long seminar on President Adam Falk’s letter about the “alignment of senior administrative responsibilities.”

Most interesting omission from President Falk’s letter? Any use of the word “endowment.” If I were Collette Chilton or a member of her staff, I would be concerned. Consider the duties of Suzanne Welsh, Swarthmore’s Vice President for Finance and Treasurer.

The Finance and Investment Offices oversee the financial responsibilities of the College which include the budget, financial planning, endowment and debt management, and stewardship of financial resources.

How about Pomona?

Vice President and Treasurer Karen Sisson oversees the College’s budget and endowment, as well as Office of Facilities and Campus Services, which covers construction planning, maintenance, sustainability, summer conferences, dining, grounds and housekeeping; Human Resources; the Business Office; and Real Property.

I can’t find an elite college (pointers welcome) which has a (highly paid) vice president of finance/treasurer who is not also in charge of the endowment. Can you? Anyone qualified to do all the things that Falk wants the new Vice President of Finance to do would be more than competent to handle the endowment. This would, more or less, simply take Williams back to the structure we had prior to 2006. (Related rants about the Boston Investment Office are here, here and here. Highly recommended for new readers!)

Summary: The Boston Investment Office is a $2-$3 million per year waste of money. We don’t need it. Instead of pretending (unsuccessfully!) to be Yale, Williams should follow the practice of similar elite colleges like Pomona and Swarthmore. Have the Trustees pick the major investments. Hire a VP of Finance who, among her other duties, would keep an eye on the endowment.

Is President Falk heading in this direction? Unfounded rumors and gossip welcome in the comments!

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Sustainability Blog

The Sustainability Blog at Williams continues to provide interesting content. Kudos to Stephanie Boyd, Director of the Zilkha Center for Environmental Initiatives. Although the blog does not make post authorship clear (as it should), I believe that Stephanie deserves credit for most of the content.

Love the slogan: “Green is the new Purple”

UPDATE: Links fixed. Thanks to Kirsten for the correction.

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Goodbyes

For the 47 staff participating in the Early Retirement Program, today is their last day. Many thanks from EphBlog for their years of service to Williams. Do you recognize any of these folks? If so, share your memories in the comments below. I would like to highlight two: Jo Procter in Public Affairs and Jean Thorndike in Campus Safety and Security. Jo has kindly answered my questions for over 7 years, treading a fine line along the College’s sometimes awkward relationship with EphBlog. She will be missed. Jean has been director of Campus Security for, I think, over 20 years. She is one of the very few senior Williams officials that I have never heard criticized by any faculty or staff. In my few dealings with her, she has been the very picture of competence and professionalism. I am sad to see her go but confident that there are several officers in the department (like Dave Boyer) who will be able to take over.

Do you have nice memories of Jo, Jean or anyone else on the list? Tell us.

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Endowment Worth $1.6 Billion?

Is this a typo or some inside scoop?

Investors in private equity funds are still searching for the ‘holy grail’ where their interests are perfectly aligned with the funds investing their capital, an investor said on Thursday.

Investors are seeing some better terms in their fund agreements since the financial crisis hurt funds’ returns and gave them more clout to negotiate terms.

Still, some question whether their interests are really aligned with the firms which invest their capital, and whether any gains made on terms will just be lost when the economy and markets improve.

Investors, known as “limited partners” (LPs) and private equity executives, known as “general partners” (GPs), have acknowledged for some time a shift since the boom years when GPs had more leverage to dictate terms as investors scrambled to get into their funds.

“I think GP-LP alignment is the holy grail that we all talk about but may never see,” said Collette Chilton, chief investment officer at Williams College speaking at private equity conference Super Return U.S. on Thursday. Chilton oversees the Massachusetts-based college’s $1.6 billion endowment.

Comments:

1) The last public data on the endowment out its value at $1.36 on June 30, 2009. Could we really be back to $1.6 billion now, even after spending around $70 million during the fiscal year? Could we really be up approximately 23% in a year when the S&P 500 is up 18%? Sure! So, I bet that this is not a typo, that Chilton mentioned the correct value in her talk. (Senior administrators and trustees get a monthly (I think) update on the endowment.)

2) Chilton’s comments on LP/GP conflicts are perfectly sensible. Perhaps some readers could provide more background.

3) Why does Chilton speak at a conference like this? There are lots of reasons. But one of them is that it raises her personal profile in the investment world so that, should she decide to leave Williams and take the rest of the investment office with her, she will have an easier time raising money. Previous rant here. (Highly recommended for new readers and the #1 hit for Collette Chilton on Google.)

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New Vice President for Alumni Relations & Development

This message was sent to Students, Faculty, and Staff on April 22, 2010 by Adam F. Falk, President’s Office:

After a national search and with the enthusiastic endorsement of the Search Committee I have invited John Malcolm ’86 to join our campus community as Vice President for Alumni Relations and Development.

All who met John through the search process were impressed by his extensive experience in constituency (including alumni) relations, volunteer support, fundraising, and management. As President and CEO of Big Brothers Big Sisters of Greater Los Angeles, he oversees programs that match volunteer mentors with more than 1,500 youth, almost all of whom live at or below the poverty level. At the national organization he was involved with strategic planning and in expanding significantly the private revenue available to regional programs. While at Swarthmore he organized and oversaw the most successful comprehensive campaign in the college’s history. Before joining the Development Office at Bucknell, he had served as a canvasser on the West Coast for Citizen Labor Energy Coalition/Citizen Action. After graduating from Williams he worked as a visual artist, mostly in fine oil paintings and drawings.

John’s passion for education, especially of people from underserved communities, and building support for education is infectious, and he is wonderfully thoughtful and articulate about the liberal arts and about how organizations communicate their mission and purposes. His experience in reorganizing operations will be particularly helpful as we rethink our administrative structures here at Williams.

He is as eager to be here as we are to have him. As he wrote to his new Mears House colleagues:

“My undergraduate experience at Williams shaped my adult life in fundamental ways. Coursework bolstered my belief in the importance of distributing opportunity equitably to disenfranchised populations. Involvement with issue-focused student organizations launched my interest in outreach to diverse constituencies and in designing effective organizations. Friends made at Williams comprise a surprisingly hefty percentage of the folks I’m connected with on Facebook. My expectation in returning to the College is simply that we will collectively, by creatively and effectively engaging our increasingly global and diverse alumni body, ensure similarly relevant, transformative educations for current and future Williams students.”

John will succeed Mike Reed, who has served as Interim VP, since the retirement of Steve Birrell last summer. Our thanks go to Mike as well as to the Search Committee:

Chair Mike Reed ’75, V.P. for Strategic Planning and Institutional
Diversity
Collette Chilton, Chief Investment Officer
Will Dudley ’89, Professor of Philosophy
Bill Lenhart, Provost and Treasurer
Keli Kaegi, Assistant to the President and Secretary of the College
Martha Tetrault, Director of Human Resources
Laurie Thomsen ’79, Trustee
Sarah Underhill ’80, President of the Society of Alumni

Please join me in welcoming John as he takes up his new position July 6.

Best wishes,
Adam Falk
President

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Administrative Matters

from: Adam Falk
to: WILLIAMS STUDENTS
date: Mon, Dec 21, 2009 at 2:08 PM
subject: Administrative Announcement

To the Williams Community,

Greetings from Baltimore. As the fall term winds down and April 1 approaches, I’m eager to be with you more regularly. As the next step, I’ll be focused on Williams matters generally one day a week, often in Williamstown, from January through March.

In other transition news, I’m pleased to update you on the terms of service of the faculty’s senior administrators.

Karen Merrill has decided that her term as Dean of the College should end as planned this June 30th. I’m impressed by the dedication and care that she’s brought to this position. She certainly can return to fulltime teaching and research with a deep sense of satisfaction. I’ll be consulting with the Faculty Steering Committee on selecting her successor.

Following consultation with the Committee, I’ve asked Bill Wagner and Bill Lenhart to serve as Dean of the Faculty and Provost, respectively, through the 2010-11 academic year, and they have agreed. I hope you’ll join me in thanking them for the distinguished service they’ll continue to provide to the Williams community in these roles, and in the case of Bill Wagner for his exceptional and ongoing responsibilities as Interim President.

Andrea Danyluk will remain Acting Dean of the Faculty until Bill Wagner resumes those duties April 1. To her, as well, we are all grateful.

Williams is fortunate to have faculty willing and able to fill these important and demanding roles. It’s one of the many reasons why I’m so looking forward to joining this remarkable community.

Regards,
Adam Falk
President-elect

(thanks to ’10 for posting)

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Ephebe

Director of Career Counseling John Noble points out the word “ephebe” as one of interest to Williams graduates. It means “youth.” Perhaps even better is:

ephebus: a youth of ancient Greece; especially : an Athenian 18 or 19 years old in training for full citizenship.

Does the etymology of these words connect to that for Ephraim? What other “eph”-connected words would be interesting?

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Questions on the 2009 Investment Report III

Here is one last question that the Record should ask about the 2009 Investment Report. (Previous questions and background here and here.)

Q: The Boston Foundation, run by former Williams trustee Paul Grogan ’72, and Grinnell College provide information on the outside managers they employ. Why doesn’t Williams?
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Questions on the 2009 Investment Report II

Here are more questions that the Record should ask about the 2009 Investment Report. (For background, read this.)

A recurrent theme is that the Report is completely correct when it emphasizes the importance of, among other things, transparency and fees in its dealings with outside managers.

By continually monitoring outside managers, the Investment Office extends its initial due diligence into a formal regime designed to verify that each investment management firm is meeting its investment objectives, the overall objectives of the portfolio with respect to transparency, liquidity and concentration, and other requirements.

Just so. But then the we should hold Williams to the same standards. If the College is going to demand transparency from outside managers than we — alumni, students, and faculty — should demand a similar amount of transparency from Williams. In particular, Williams should meet the highest standards of endowment transparency.

Q: How many outside managers does the College employ? How many managers are there within each of the endowment categories? What is the largest amount managed by a single manager? [In theory, the College should not mind answering these questions. (I think that there are 50 – 75 outside managers, but I am not sure.) I am fairly certain that what the College does is consistent with best practices. They probably have lots of managers in each category with no one manager being too large. But there is no reason not to share these statistics with the Williams community.]

More questions below.
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Questions on the 2009 Investment Report

The Williams College Investment Report 2009 is available. I believe that this is the first year that the College has issued a separate report. Normally, the only investment related information that is made public comes in the annual A Report From Williams. This version is much more detailed. Kudos to Williams for preparing this report and for making it public.

Normally, I would wait for the Record to write an article about the endowment’s performance and then criticize it. But let’s be more pro-active and constructive! Here are the questions that the Record reporters should ask Chief Investment Officer Collete Chilton and/or Investment Committee Chair Michael Eisenson ’77. (For expert commentary from the faculty, the Record should also reach out to professors with finance knowledge/experience: Caprio, Gentry, Kuttner, Rai and Savaser, among others.)

I will put the proposed questions in bold and then associated background/commentary in [italics].

Q: The endowment dropped 18.4% last year. It is impossible to understand performance without reference to a benchmark. What does the College use as a benchmark for the endowment and how was the benchmark’s performance? [So far, Williams has refused to release any information with regard to the benchmark that it uses for the endowment. That is ridiculous. There is no way for anyone to know if Chilton and her staff are doing a good job if there is not some benchmark to compare their results with. Every mutual fund in the US is required by the SEC to provide performance relative to a benchmark.]

Q: The College’s letter to the Senate Finance Committee reported that:

Some members of the Investment Office are eligible for bonuses based on the return on our investments, though the office is so new that we have not completed the first year of returns on which bonuses would be computed. So, in the past ten years no such bonuses have been paid.

How many people in the Investment Office are eligible for bonuses? What is the formula used to award those bonuses? How much money, if any, in total bonuses was paid out last year? [See here for more background. The College will try to claim that releasing this information would violate the privacy rights of College employees. But note that the questions do not ask for the specific amounts given to named individuals. We just want to know how many and how much in total. Privacy concerns do not prevent Williams from releasing this data.]

See below for more questions.
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Collete Chilton’s Pay: $726,556

According to the College’s Form 990, Chief Investment Officer Collete Chilton’s total compensation was $726,556 in FY 2008 and $686,053 in FY 2007. Comments:

1) The Record should do an article about Chilton’s compensation. Don’t the editors believe in muckraking anymore? I bet that some of the more left-wing Williams professors would provide good quotes, either on or off the record. Don’t think that there is anything suspect going on here? Perhaps you failed to read the College’s letter to the Senate Finance Committee.

Some members of the Investment Office are eligible for bonuses based on the return on our investments, though the office is so new that we have not completed the first year of returns on which bonuses would be computed. So, in the past ten years no such bonuses have been paid.

In other words, the College worries that Chilton and other (how many?) investment professionals won’t work hard enough even though Williams is paying them hundreds of thousands of dollars per year. So, in addition to all that guaranteed money, we need to pay them extra bonuses or else they’ll —- what exactly? Spend all day at the movies?

I think that this is the sleaziest arrangement at Williams today.

2) How did this happen? Tough to know. I am still trying to get the inside story. My guesses/speculation:

a) Both Morty and key trustees were in favor of starting an Investment Office and other steps for turning Williams into Yale.

b) No one worried too much about Chilton’s compensation. The Trustees, of course, see their role as more supervisory. They don’t set salaries. There may have been a head-hunter or compensation consultant involved. Morty, while in theory worried about the College’s overall budget, had no real incentive to pay Chilton less.

Never forget that Morty, for all his many wonderful qualities, is not — How to put this politely? — immune to the siren song of worldly wealth. It is not out of the goodness of his heart that he serves on the board of MMC. It was not an accident that he failed to take a pay-cut, unlike presidents at some other schools, during the budget crisis. It is not irrelevant to him that the Northwestern job pays around twice as much. It was not via random motion that his annual salary increased by hundreds of thousands of dollars during his time at Williams.

So, subconsciously or not, Morty would realize that a proposal to pay the new Chief Investment Officer substantially more money than he was then making would only provide a (dramatic?) upward push to his own compensation.

c) This deal was made in the bubble years. There is no way that Chilton could find a comparable job paying this much money today. Even for 2006, the compensation is excessive. Professionals I quizzed felt that someone with Chilton’s resume — modest compared to others in the field — would be somewhere in the $300,000 to $500,000 range when her contract was signed three years ago.

3) What should be done? The College ought to close the Boston Investment Office. (Read the whole comment thread for details and background.) Most/all of the senior investment professionals (like Chilton) would decline to move to Williamstown. Problem solved, without any nasty firings or salary cuts. In a financial crisis in which Williams can’t afford to spend a few thousand on the Williamstown Jazz Festival, we can’t afford a Boston Investment Office.

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Latest Form 990s

For your reading pleasure, here (FY 2006 and FY 2007) are the latest Form 990s from Williams. See here for background information. I will provide more details in due time, but one number jumps out.

An influential alum asked me last week how much Chief Investment Officer Collette Chilton was paid. I did not know, although I had some speculations about the total cost of the Boston Investment Office, which should be closed.

With this new data, my estimate for Chilton’s total compensation is $900,000 per year.

That is absurd. But I am just a class-warfare-loving, Obama-voting, wealth-spreading Eph. No need to pay attention to me on the topic of appropriate pay for financial professionals. What do I know? Professor Sam Crane notes that:

Morty’s approach to this crisis, and managing the college generally, is not economistic. Yes, he is an economist, and uses economics as a tool, one tool, in running things. But he also recognizes the place as an organic, human community and thus does not (and I suspect will not) act precipitously, without regard for the complex interactions of the various parts of the campus. He’s a mensch. He respects what people do here, the full range of what people do here; David does not.

Perhaps. I look forward to observing the “complex interactions” at the next faculty meeting where at least some professors might wonder how Williams can afford to pay millions of dollars to decidedly unimpressive Boston-based financial bureaucrats while faculty/staff salaries are frozen. Should be fun!

;-)

I tease Sam a bit. I hope he doesn’t mind.

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Spending on Administration

Most interesting single data point in the budget? Spending on “Administration” jumped 24.5% last year, far and away the biggest percentage increase in the budget and the most unusual data point given historical trends. In dollar terms, that seems to be a $2 million increase above the expected rate of growth.

op20081

What’s the cause? Well, goodness knows that Morty has been adding bureaucrats to the Williams payroll for years. I am surprised that there is any room left in Hopkins Hall! But things like the (relatively) new Zilka Center and the Office of Strategic Planning & Institutional Diversity are not that expensive.

My guess is that the cost of the Boston Investment Office is grouped under “Administration” and that the unexpected $2 million is a very rough estimate of its annual cost. Since Collette Chilton and at least some of her staff were in place before June 30, 2007 (the start of fiscal year 2008), the $2 million increase is an underestimate, but there has been other growth during this period as well, so, net-net, we won’t be far off. So, my estimate of $1 million for closing the Boston office is probably, if anything, conservative.

Can anyone think of a different category of Administration that would have grown so much between 2007 and 2008?

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2: Close the Boston Investment Office

Williams survived for 200 years without an investment office in Boston. We don’t need one. No other college that I am aware of has an investment office located in a different city. Rent and salaries are probably in the neighborhood of a million dollars a year. Close the office and allow those staff who want to move to Williamstown to do so. Although there is a theoretical case that having an office in Boston gives Williams certain advantages, this is probably not true and, moreover, not true enough to justify the expense.

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Transparency

Williams gets a mention in this article about bringing more transparency to the Tufts endowment. Mark Orlowski’s ’04 Sustainable Endowments Initiative is also favorably mentioned. Comments:

1) I think that Williams has done less well on these measure of transparency — public info about holdings and proxy voting — over the last few years. Is that connected to the appointment of Collette Chilton as CIO? I don’t know.

2) Alas, these measures of transparency, as desirable as they may be, do not touch on the heart of the issue: information about allocations, benchmarks and managers.

3) I wish that more reporters would bother to understand that much of the debate in the Tufts article is ridiculous moral preening. See here and here for background. As long as your institution puts a lot of money in hedge funds, venture capital, private equity and the like, you can have only a limitted understanding (if at all) of your involvement with Sudan, Tibet, weapons, tobacco or whatever the cause du jour.

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Spoonful of Sugar

anon2 (a writer who ought to join us as an author) writes:

marypoppins The tough calls at GM are not that something needs to change but in figuring out exactly what needs to be changed. The same goes at Williams: adjustments (potentially even big adjustments) are needed but getting the details right is key. Making broad, blanket statements might sound macho (e.g., freeze salaries for three years; no hiring, no matter what the circumstances) but that doesn’t make them prudent. If nothing else, a spoonful of sugar might help the medicine go down.

You mistake me for Mary Poppins.

1) I agree that someone in authority at Williams (Morty, Bill Lenhart, etc) needs to use sugar. Indeed, one of the reasons that I am so disappointed in Morty is because he is leaving Williams at precisely the moment that his decade of political capital ought to be spent. It will be much harder for his successor to make X cuts than it would be for him to do so. But (fortunately!) I am not in charge.

2) My role, in this context, is to educate people about the details of what is bradburd_webgoing on (and your various contributions are much appreciated in this regard) and to create some intellectual space for those seeking deep cuts. Note the formation of the “Ad Hoc Advisory Committee on Budget Priorities.” [Love the Newspeak! More accurate name would be “Committee for Major Budget Cuts.”] As always, the key to knowing what a college committee will do is to look at who is on it. Think Professor Ralph Bradburd (a great guy and my teacher for microeconomics) is on the committee for sugar purposes? Think again. One reason that I enjoy staking out these “macho” positions is that, by putting this stake in the ground of public discussion, it will make it easier for the squeamish to live with the cuts to come.

3) Do I know “exactly what needs to be changed?” No. And I agree that figuring this out is hard work. The key point that I am making and that no one has yet disputed is that tens of millions of dollars in cuts are necessary. It is not a question of cutting X or cutting Y. We need to cut it all if we are to have any hope of avoiding lay-offs and not reducing financial aid. (I realize that plenty of staff/faculty members would be happy to dramatically reduce financial aid, but that is a discussion for a different thread.)

4) Collette Chilton gave an interesting talk in Boston last month. She mentioned that the College’s endowment was at $1.4 billion. She pointed out that, although there was a major drop from its peak of $1.9 billion, people should not panic. After all, the College’s endowment was at $1.4 billion in 2005 and in 1999.

This is true but horribly misleading. The difference between now and then is that the College spends much more out of the endowment now then it did in 2005, much less 1999. If you think that endowment spending then was prudent (I think it was excessive), then you are compelled to reduce current spending to that same level. Otherwise, you are merely stealing from the future to pay for the present.

We need to cut the budget by tens of millions of dollars. Without touching head count or financial aid, that means cutting almost everything else you can come up with.

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Going to Fail

Three years ago, Morty/Trustees decided that Williams was going to emulate the Harvard/Yale model of endowment management, hire a high-priced chief investment officer, allow her to assemble a staff, and then let her make a decision. I offered thoughts on this plan two years ago.

Short version: Williams has done great by allowing a trustee committee guide the endowment into the best deals. Why mess with what works? Perhaps hiring a single professional to support that effort is a good idea. A new investment office, much less one located in Boston, is not.

Yale CIO David Swensen insists:

A lot of institutional investors think they are emulating Yale, but they are not. Most endowments use fund of funds and consultants, rather than making their own well-informed decisions. You can divide institutional investors into two camps: those who can hire high-quality, active-management investors and those who can’t. If you are going to invest in alternatives, you should be all in, and do it the way Yale does it — with 20 to 25 investment professionals who devote their careers to looking for investment opportunities. Or you belong at the other end, with a portfolio exclusively in index funds with low fees. If you’re not going to put together a team that can make high-quality decisions, your best alternative is passive investing. With a casual attempt to beat the market, you’re going to fail.

If someone looked at what we’re doing superficially and made superficial attempts to copy us, then I have little sympathy for them.

What would Swensen say about Williams? Tough to know. The Williams investment office in Boston has 7 people. But one of those is a secretary and two are junior analysts — both of whom seem to be brand new. Does the office explicitly hire these folks for one or two year positions? Neither is an alum, although at least one alum had this position last year.

So, we are down to 4 experienced professionals (Chilton, Donovan, Joeng and Wakeman). Does that sound like Swensen’s “20 to 25 investment professionals who devote their careers to looking for investment opportunities?” I don’t think so.

Again, this is not an anti-Chilton screed. I said two years ago that Chilton’s reputation was as a “solid professional” and I see no reason to change that judgment. Indeed, I was speaking to a (different) rich alum the other day who reported that he was “pleasantly surprised” by his interactions with Chilton.

But, whatever Chilton’s merits, there is no reason for the College to maintain a Boston investment office. We need to cut costs and that is a good place to start. I don’t want anyone to be fired. The College should just close the office and invite all employees to move to Williamstown. Some will, and some won’t.

There is a larger discussion to have about how Swensen’s vision applies to Williams, but that is a debate for another day.

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Endowment Worries

Should you be worried about the Williams endowment? Consider The Economist:

Ivory-towering infernos

America’s universities have seen billions of dollars go up in smoke

HARVARD will have to take a “hard look at hiring, staffing levels and compensation”, wrote Drew Faust, the university president, on December 2nd in a surprise letter to Harvard deans. The Harvard endowment, which was worth $36.9 billion at the end of June, has since lost at least 22%, says Ms Faust. The university should brace itself for losses of 30% in the fiscal year to next June, she adds, although even that may prove far too optimistic. Its ambitious plans for new buildings on the other side of the Charles river seem likely to be scaled back, or at least slowed down.

Harvard is not alone. At Stanford University, the president, provost and other senior executives have taken a 10% pay cut. There is speculation that its endowment, which at $17 billion in June was third only to Harvard’s and Yale’s, has performed horribly since then. Many smaller endowments—only six were bigger than the $8 billion that Harvard says it has lost so far—have suffered too. Williams College has seen its endowment plunge by 27%, from $1.8 billion to $1.3 billion, while Wesleyan University’s has tumbled by 24% to $580m.

I have never seen a 27% number from Williams or even an official estimate of $1.3 billion. Will Stack ’11 reported the $1.3 billion number, as did the Record.

It is projected that the College endowment has dropped precipitously since June 30 because of its 48 percent exposure to equity markets, which have been in sharp decline. Although no exact figure has been calculated as to its current value, President Schapiro estimated that the endowment is probably worth around $1.3 billion today, a $500 million, or about a 28 percent drop since the last time it was precisely calculated on June 30.

“If we have $1.4 [billion] now I’d be shocked; it’s probably $1.3 [billion],” Schapiro said, noting that part of this decrease is due to the College’s withdrawals of 80 or 90 million dollars a year, about 5 percent of the endowment, for operational expenses.

Keep track of two different types of decreases in the endowment: falls in the value of investments and withdrawals for spending. The Economist is only discussing the former and yet is using the $1.3 billion number that includes both categories. Comparing Harvard’s 22% fall (all because of investment losses) with Williams’s 27% fall (both losses and spending) is apples and oranges, or perhaps crabs and clementines.

The real uncertainty is in the portion of the endowment that is not in publicly traded securities. Williams (and other schools) don’t know what is going on with these investments. In fact, even the professional managers in charge don’t really know! Assume that you are running a venture capital firm and have used $500 million to buy a company last year. Williams (along with 9 other endowments) invested $50 million. How much is that investment worth now?

No one knows! Rant continues below.
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