5-C Endowments Suffer in Past Year; Pomona’s Dropped 22 Percent

Pomona’s endowment investment returns are down 22 percent as of Jun. 30.Although this may appear to be a significant loss, Vice President and Treasurer Karen Sisson said this drop is actually less severe than anticipated. Last year, the school predicted that returns on investments would drop by 30 percent.“The endowment is down more than the returns are down, because we spend some of it every year in our operating budget,” Sisson said. “The investment returns were down 22 percent….We put a dollar [in investments] and came back with 78 cents.”In spite of these losses, the amount of endowment money being spent has increased, and it will continue to increase in the immediate future.In the past five years, the amount of endowment money used to cover Pomona’s operating budget has jumped from $37.5 million for the fiscal year 2004 (covering 35.9 percent of the total annual operating budget) to $65.2 million for the fiscal year 2009 (44 percent of the total annual operating budget).This increase in spending has resulted in additional faculty and programs, increased student services, renovations, new construction projects, and the implementation of the “no-loan” policy, which eliminated loans from all of Pomona students’ financial aid packages.Sisson said the reason the school has been increasing their spending is Pomona’s 12-quarter spending program.“It’s a three-year moving average. We have a spending rule that says we will take out not less than 4.5 percent and not more than 5.5 percent (of the total endowment),” Sisson said. “We determine what we need for the budget, and whether it’s within that 4.5 percent to 5.5 percent band, and as long as it’s within that band, that’s what we pull out.”Because of this system, Sisson explained, the endowment losses Pomona has seen this year will not be felt for a few years.“The bad year we just had doesn’t really show up for three years,” Sisson said. “You will see the endowment contribution to the budget go up modestly over the next couple of years … but either fiscal year 2013 or 2014, the amount we are going to be able to take out is going to fall.”One advantage of Pomona’s 12-quarter system is that it allows the school to prepare for this eventual decrease in endowment spending.“We’re accumulating a surplus this year, we’re accumulating a surplus next year, and we hope to be accumulating a surplus in year three to offset the deficits we’re going to have in the out-years,” Sisson said. “It’s kind of like the squirrel who puts all their nuts away, so that in the winter they can go back.”Of course, Pomona is not the only school dealing with endowment loses. Throughout the country, almost every school is suffering from financial losses due to the recent economic downturn. Many of these schools,Sisson noted, have had far more serious cuts to their endowment and spending because of these losses.Endowments and endowment spending across the 5Cs has also recently decreased. Scripps College’s endowment has dropped from $276 million to $215 million this year—a negative return of 18.7 percent.Unlike Pomona, however, Scripps does not rely as heavily on their endowment to pay for the budget.Scripps Treasurer James Manifold said only about 25 percent of the school’s operating revenues are covered by endowment money.“Some schools are ‘tuition drivers’ with little or no endowment,” Manifold said. “Other wealthy schools are ‘endowment-driven.’ Scripps is in the middle: the Goldilocks position.”Like Pomona, Scripps’ endowment losses have not caused the school to make significant reductions in spending.However, Manifold noted that some changes have been made because of the decrease in the endowment. The tuition for students increased two percent this year. In addition, Scripps changed their endowment spending from a 12-quarter system like Pomona’s to a 16-quarter one. This change, Manifold adds, allowed for a three percent increase in income for now.A huge relief for Scripps came from an anonymous donation that helped pay for scholarships this year and allowed the school to delay dealing with the endowment losses for another year.“Next year’s budget should be a challenge,” Manifold said. “We have begun to work on it now.”Harvey Mudd College has experienced similar losses. As of Jun. 30, the school’s endowment had fallen 17.2 percent. Like Scripps, HMC relies less upon its endowment to cover budget costs than Pomona does, covering about 25 percent of its operating budget through that endowment.Also like Scripps, the school received a number of large donations that offset some of the endowment losses.HMC also uses a long-term strategy, similar to Pomona’s and Scripps’, that can compensate for dips in the endowment.“The college’s endowment is managed in a way that when the market is making large gains, the college lags slightly,” HMC Assistant Vice President for Business Affairs Scott Martin said. “However, when the market is reporting large losses, the college’s endowment does not lose as much.”Like Pomona and Scripps, HMC is looking for ways to better prepare for economic downturns in the future.“This forecasting allows us to be prepared for a variety of outcomes so we can plan and respond … accordingly,” Martin said.The Student Life was unable to contact the treasurers for Pitzer College or Claremont McKenna College.

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