By Hannah Jaenicke and Jacob Horn
News Editors

Figures publicized by U.S. News and World Report this week rank Haverford College as having the sixth worst "percent loss of endowment" of all institutions of higher education in the United States.

The percentage drop of 35.5% for the year ending June 30 2009, including withdrawals for spending, put Haverford’s endowment at $336,086,000. CNBC compared only the schools with the 250 largest endowments, ranking Haverford at number one in terms of percentage loss.

The release of these figures prompted student discussions, particularly on the Go! Boards, with students expressing shock at how Haverford’s percentage loss compared to that of peer institutions, while others argued that the numbers did not accurately reflect the state of the College’s long-term financial situation.

CNBC and U.S. News and World both use figures compiled by the National Association of College and University Business Officers (NACUBO)-Commonfund Study of Endowments. This study shows college and university endowments dropping by an average of 19% during the 2009 fiscal year.

As of December 30 2009, Haverford values its endowment at $363,558,000, showing an increase of just under $30 million in six months. However, figures compiled at this time show that the percentages of the endowment allocated to the US Equity, International Equity, Real Assets, Fixed Income - Government, and Invested Cash categories are below current target levels.
President Dr. Stephen G. Emerson ‘74 said that while Haverford’s investment strategy had worked well for the College endowment throughout the past decade and in particular in the past five years, putting Haverford in the top 4-10% of all college investment portfolios, "last year that same structure worked against us."

Haverford invests its endowment in a number of markets in order to make long-term gains. Its investments are split between domestic and international equities, non-marketable alternatives, marketable alternatives, real assets, government bonds, corporate bonds, and invested cash. This mix of investments means that Haverford has some funds that are tied up in long-term partnerships with firms, and some funds that are immediately accessible.

Investment decisions are made by the Investment Committee, which is part of the College’s Board of Managers. The committee was restructured last year in order to create a smaller core decision-making body, composed of eight members including Assistant Vice President and Director of Investments Mike Casel, with a larger advisory group providing additional expertise. Its members have different backgrounds in finance, including portfolio management, private equity, and real estate; they must reach decisions through consensus.

Casel is responsible for monitoring the College’s investments and investment managers on a day-to-day basis, making reports to the committee on issues like asset allocation and performance, helping the committee perform due diligence on perspective investment managers, and implementing the committee’s decisions. The committee as a whole is responsible for making all decisions related to the endowment, and it is Casel’s job to support the actions of the committee.

Richard White ‘81, a member of the Investment Committee, said that it is important to look at the endowment in the long-term: "It’s hard when you guys have a four year career here; time is your friend as an investor, the longer you extend your time horizon the longer the volatility works in your favor." White later added, “If you can’t take the heat you shouldn’t be in the game. In some sense, we just walked through fire.”

When the Dow Jones dropped by almost 800 points in a single day in September 2008, the fear was that it would drop further, adversely affecting Haverford’s Dow-linked investments. As a result, the Investment Committee decided to make more of the College’s assets liquid, i.e. into cash or bonds, in order to prevent future losses in case there were further drops in stock market value.
However, the stock market did not suffer from any further significant devaluations and instead rose over the following months. Haverford’s conversion to a greater bulk of liquid assets meant that the endowment’s worth did not rise in line with the valuations of other colleges’ stocks and shares as the value of cash stayed relatively static.

Vice President of Finance Dick Wynn said, "We did not go out borrowing, like some other places did, but we did make our overall investments more liquid. Looking back, do we wish we’d done it somewhat differently? Sure, obviously. Hindsight’s 20/20."

Larry Tint ‘67, Chair of the Investment Committee, said, "We met with the Board and with the President about a year ago when the market was near the bottom, and we discussed the consequences of leaving the money where it is…and we adopted a series of strategies to allow us to continue to provide the services that were needed by the school and protect ourselves from the possibility that any further reduction in the equities market would have cut into our ability to do that. In retrospect it turns out that some of those decisions were made near the bottom of the market, but had the market continued to go down…we wanted to make sure that the College had ample funds to carry on its academic programs."

"We chose to play it safe," said Students’ Council Co-President Harrison Haas ‘10. "I don’t think anyone could have faulted the Board for making the decision at the time. But in retrospect it was not the right decision."

Members of the senior administration stressed that, despite the financial tumble, there have been no cuts to financial aid or to academic programs. Although some positions at the College were eliminated, many were vacated voluntarily and then not replaced.

During the worldwide financial crisis, Haverford sought to insulate its losses by freezing discretionary spending and making cuts to some areas of the budget, including changing the employee healthcare and retirement plans to reduce costs.

Furthermore, Haverford did not take on any new debt during the period in which the endowment’s value decreased, and instead has paid off $2 million of the $104 million that it owed. The $104 million is derived from loans taken out in the 1990s and in the past decade, largely to pay for building projects such as the Koshland Integrated Natural Science Center (KINSC) and the Gardener Integrated Athletic Center (GIAC).

By not increasing its debt, Haverford was able to reaffirm its AA credit rating with both Moody’s and Standard & Poor’s (S&P). S&P’s report states that Haverford’s rating reflects the college’s applicant acceptance rate of 25%, students’ high SAT scores, "large endowment," "successful fundraising history," future projects, "conservatively managed finances," "consistent operating surpluses," moderate endowment spending levels, and "limited additional debt plans."

The report states that a higher rating could be achieved if the college’s maximum annual debt service burden were below the current level of 12.5%, and if there were less competition from other highly selective colleges.

"They were impressed with the fact that we dealt immediately with the expenditure side, so we reduced endowment spending and so forth, and they re-rated us at AA," said Wynn.

While the proportion of the endowment spent remains around five percent, the percentage of the operating budget funded by the endowment has increased in the past five years from 21.5% in the 2005 fiscal year, to 25.3% in the fiscal year ending in June 2009. This means that although the value of the endowment has decreased, the operating budget is more dependent on it for funds.

“Because of the excellent endowment management, it grew, and it grew faster than the rate of inflation and faster than the rate of tuition increases, so that we could then construct a budget that was a little more endowment-dependent," said Emerson.
Andrew Nellis ‘10 said that he thought the large percentage drop in Haverford’s endowment, as reported by U.S. News & World and CNBC, was "shamefully bad." He added, "Forgetting about the numbers, just looking at the company we were in, it seemed embarrassing."

Nellis did not think that a community meeting between members of the administration and students was necessary, but that he thought some students would want one.

Nick Lotito ‘10 said he thought the performance of Haverford’s endowment reflected the current world financial situation where "risk is incentivized and accountability is non-existent."

While Lotito said he "was not particularly outraged that the college had not publicized the figures, it would be good to have some kind of explanation. How is it that a part of the College which really affects our lives performs so poorly? It doesn’t seem right."
In response to student concerns, SC Co-Presidents Will Harrison ‘10 and Harrison Haas ‘10 said in an email on Thursday that they have begun an effort to organize a panel discussion between members of the senior administration and students in the coming weeks.

As of Thursday morning, Emerson said that "there are no firm plans" to host a meeting with the community regarding the publication of NACUBO figures and the subsequent student reaction.

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