Talk to Wooster
Spring 2005
Green Grows Our Endowment
Wooster’s long-term investments are robust enough to nourish a distinctive academic program. But it wasn ’t always that way.
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The last decade has been a rollercoaster ride for many university endowments. Thanks to careful stewardship, Wooster’s ups and downs have been a bit less stomach-churning than most.
"We took full advantage of the big equity boom in the nineties, but we were smart enough to take some money off the table along the way," says Stewart Massey ’79, who has chaired the investment committee since 1992.
The College’s ten-year average annual return of 9.8 percent was in the top 20 percent of 448 institutions surveyed by the National Association of College and University Business Officers, including multi-billion dollar behemoths like Harvard, Princeton, and Yale. After almost doubling in five years to $228 million, the endowment fell to $197 million in 2003 before rebounding to $220 million today.
"Over the past three or four years, the investment committee has become much more a working committee rather than simply an oversight group," says Robert Walton, vice president for finance and business. The group meets three times a year in Wooster and holds two or three full-day meetings in New York, to set strategy, review approximately two dozen investment managers’ performance, and make changes where necessary.
"Many of the most successful and talented [investment managers] are no longer working for the big firms," Walton says. They are with small and medium-sized companies that do high-end, specialized investing. These are not firms that just anyone can pick up the phone and call. "But we have some very well-connected members of the investment committee, like Stewart Massey, Mikael Salovaara, Bill Longbrake ’65, and Peter Sundman ’81, who can [make those calls]."
The committee’s focus has also begun to shift to what investment professionals call risk-adjusted return.
"Most investment managers put themselves in a race with an index like the S&P 500. For an endowment, that’s meaningless," Massey says. "A manager can come in and say, gee, we had a great year, the S&P was down twenty-two percent and we were only down ten. But the endowment still has to pay out five or six percent. That puts you in a hole. So we’ve started focusing more on reducing our risk while still achieving good long-term returns."
By using a series of mathematical formulas with names like the Modigliani and Sharpe ratios, the investment committee can calculate the degree of risk associated with one manager’s investment approach versus another’s and choose accordingly.
"Basically, we’re willing to give up a little growth to not put endowment donors’ money at risk," Walton says.
So far, it’s working. In 2004, the endowment achieved a total return of 10.14 percent, with about one-quarter the traditional level of risk.
A virtuous circle
The endowment challenges of the next decade would have been familiar to earlier generations of the College’s leadership: adding new resources to strengthen the academic program and ensure access for talented students; investing wisely; and maintaining the discipline necessary for growth.
With a bit more than two years to go, Independent Minds: The Campaign for Wooster is more than halfway to its goal of $53 million in new endowment. Not bad, given the heavy emphasis on capital projects – some $42 million worth – in the first five years of the campaign. Already new professorships have been endowed in Spanish, philosophy, classics, and the natural sciences, as well as three new leave replacement positions. More than $16 million has been raised for endowed scholarships.
While the progress to date has been gratifying, "If we reach the overall campaign goal but fall short of $53 million in new endowment, I personally will not feel that we have succeeded," says campaign chairman James Clarke ’59.
On the spending side, the administration and trustees are committed to gradually reducing the annual payout from six percent to five. (The national average, according to a 2004 Commonfund study of 707 private colleges and universities, is 4.8 percent.) According to Massey, the result over time will be "a kind of virtuous circle, because as the endowment grows, the payout goes higher anyway in absolute dollar terms."
That kind of discipline, says Bob Walton, can ultimately have a transformative effect on the College’s finances and thereby on the academic program. "It’s the difference between throwing off $10 million for operations today and $20 million in 2020."
"Growing the endowment may not be as tangible as putting up a new building," concedes Jim Wilson, chairman of the Board of Trustees, "but increasing Wooster’s endowment will allow us to continue to position ourselves among the best liberal arts colleges in the country."
Because Independent Study requires superb research facilities as well as intense, one-on-one relationships between faculty and students and a host of other resources, Howard Lowry once described it as "an aristocratic program in a democratic age." Wooster’s endowment provides the critical margin of excellence that makes such a program possible. To cite just one example, this year the Henry J. Copeland Fund for Independent Study awarded grants to ninety-two seniors to help defray research costs for their I.S. projects. The grants allowed students to purchase specialized databases, obtain critical pieces of lab equipment, and travel as far as Cape Town, Costa Rica, and Belfast to conduct their research.
"It’s only through the built-in strength of the endowment," says President R. Stanton Hales, "that Wooster can offer scholarships that match the needs and abilities of our students, compensation that matches the talents of our faculty, and all the resources necessary to sustain and strengthen one of the truly distinctive, excellent liberal arts colleges in America."
