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Bully!
Skidmore’s investments may be small, but their performance is huge
by Peter MacDonald

“How big is Skidmore’s endowment?”
a mother asked during a campus tour passing outside my office door. “It’s getting better… I think,” the student tour-guide responded. I stuck my head into the hallway and told the group, “Skidmore’s endowment is $177 million.”
It wasn’t clear if the number meant anything to them.

Endowments were in the news a few years back, when the Wall Street bubble burst and some colleges took hits that made headlines. But who really understands them? The truth is, the way an endowment undergirds the health and welfare of its institution is both more important, and less arcane, than many might think.

The margin beyond tuition
Endowment is a college’s investment portfolio—a permanent, relatively secure funding source now and into the future. It serves as a rainy-day fund, but it’s also a vital income source for current operations. Ideally, the endowment principal is never spent—only the earnings from interest and dividends are used. Skidmore each year spends about 5% of its endowment; any surplus income is added back to keep the principal growing.

Of course, another driver of endowment growth is gifts from the college’s alumni, parents, and friends.

Says President Philip Glotzbach, “The endowment provides the vital margin beyond tuition revenues,” which don’t cover the full cost of educating students. “It’s the difference between just getting by and doing well.” (Imagine a farmer who sells produce at a price that’s below cost; only with extra income from investments can he pay his bills and keep the farm running.)

In the 1990s Skidmore donors established eleven new endowed professorships, which enlarged the endowment pie considerably. As of early 2003, the market value of these new faculty chairs stood at $14.4 million, generating some $700,000 annually for salaries, research funding, and other needs. Not only do the funds provide budget relief, but the boost to academic life can be significant. Says Sarah Goodwin, associate dean of the faculty, “I’ve repeatedly seen the awarding of an endowed chair coincide with a major new turn in a professor’s work—a shift in emphasis, completion of a scholarly project, or the launching of a new initiative.”

Academic life, and individual students, also benefit from approximately 170 endowed scholarships—$54 million worth, which last year generated nearly $3 million to help defray tuition costs for about 300 students. The Palamountain Scholarship Fund, for example, has aided about 100 high-performing students since 1987; similarly the Filene scholarships in music and the Porter scholarships in math and science each support sixteen students per year. Other scholarship funds are the result of gifts in honor of friends, family, or a favorite professor; grants from a variety of foundations; or bequests left by devoted faculty members.

Skidmore Endowment History
1979	$5.1 million
1989	$31.2 million
1999	$127.6 million
2000	$136.1 million
2001	$155.7 million
2002	$148.4 million
2003	$156.0 million
2004	$176.7 million

Still, Skidmore’s endowment can’t answer every call for help. “If we had a larger endowment,” Glotzbach muses, “we would not be as stretched for residence-life staffing. We would feel more secure in planning for the enormous maintenance challenges for our aging physical plant. And we would more aggressively improve faculty compensation, in which we lag behind our competitors.” Also near the top of the current wish-list are more scholarships, stabilizing of funding for Skidmore’s acclaimed Higher Education Opportunity Program for disadvantaged students (which is perennially threatened by state budget cuts), more support for student-faculty research, and beefed-up recreational and fitness offerings.

Despite its wish for more, Skidmore has long stuck to the 5% “takeout” from endowment. It’s the industry standard in academe, and Karl Broekhuizen, vice president for business affairs, warns that exceeding it tends to raise eyebrows at Moody’s Investors Service, which last year recognized Skidmore’s financial health by upgrading the college’s long-term debt rating to A2. But the combination of high ambitions and tight purse-strings is frustrating, and some on campus have argued that a slightly larger takeout could fuel speedier, even transformational progress. English professor Terry Diggory, a veteran of several college-governance committees, says, “We need to keep reviewing our endowment takeout rate, to see if we could benefit by increasing it, at least for special needs. However, we should not use the prospect of ‘milking’ the endowment to deflect us from tough budget decisions. It’s always tempting to imagine a bigger pie rather than get down to the difficult business of dividing it into slices.” For his part, Glotzbach emphasizes the value of long-term stewardship: drawing more than 5%, he says, “would represent a breech of faith with donors who have invested so much in Skidmore.”

Peers and competitors
It doesn’t take a financial analyst to conclude that endowment matters—a lot. It’s no coincidence that U.S. News and World Report’s highest-rated liberal arts colleges—such as Williams, Amherst, Swarthmore, and Wellesley—also have the largest endowments among their peers. Several top the billion-dollar mark. Skidmore’s endowment is closing in on $180 million, a figure that strongly correlates with its U.S. News ranking of forty-fifth. Among fifteen peer colleges with which it typically compares itself, Skidmore ranks eleventh in endowment size.

More telling than the size of the principal, Glotzbach argues, is the endowment takeout per student each year—the average funding per student that’s transferred into the operating budget for direct support of academic programs, student life, facilities, and scholarship aid. Hamilton, at the top of the peer group, drew roughly $11,900 per student in 2003, more than triple the $3,400 that Skidmore mustered. Colleges like Hamilton can and do lure talented students away from Skidmore by offering larger aid packages.

A history of bootstrapping
Joseph Palamountain, Skidmore’s president from 1965 to 1987, once remarked, “In moving from Wesleyan to Skidmore, I moved from the financially sublime to the financially ridiculous, Wesleyan enjoying greater endowment income per student than Skidmore had endowment principal per student.” But there’s nothing ridiculous about the progress since that time, says David Marcell, Skidmore’s former provost. “In forty years we simultaneously spent about $140 million to build a new campus, enlarged the student body and added programs and staff, and grew the endowment to nearly $180 million,” he points out, and he hazards, “There isn’t another college in the country that’s achieved this.”

The endowment reached its first million-dollar mark in 1949 during the presidency of Henry Moore. It took about twenty years to reach the next million. But by then, with stagnant enrollments and the costs of building a new campus, the college had accumulated a deficit of $1.2 million. Stabilizing the finances and completing the new campus held endowment growth to a snail’s pace during most of Palamountain’s tenure. In the mid-1980s, now on firmer ground, Skidmore embarked on the Celebration Campaign, which added $15 million to the endowment, pushing its total value to $24 million.

When President David Porter took office in 1987, he recalls, “It scared the life out of me: We had $25 million in endowment, which was considerably less than the annual budget.” Soon he set in motion the Journey Campaign, with an ambitious goal of $78 million, $60 million of it for endowment. When the Journey blew past its goal and ended at $86.5 million, trustee Joan Layng Dayton ’63, chair of the campaign, declared that Skidmore had officially moved from “adolescence to adulthood.”

Over the past decade, thanks to the Journey’s laserlike focus on endowment, a roaring bull market on Wall Street, and sound investment decisions, Skidmore’s endowment more than tripled, from $53 million in 1994 to $175 million in 2004. The average college and university endowment doubled in the same period. Skidmore’s endowment per student also tripled—the best performance in its peer group. And while endowment takeout supplied 5% of Skidmore’s operating budget in 1994, it supplied 10% in 2004.

“Like many things at Skidmore, endowment was built through a bootstrap operation,” says Oscar Tang, chair of the board of trustees’ investment committee. “But it is finally contributing meaningfully to the operating budget—and that’s one of the reasons Skidmore has improved so markedly in the past decade.” Indeed, in that period Skidmore added fifteen full-time faculty and more than sixty staff positions. New majors, new study-abroad programs, the Honors Forum, and the Intercultural Center were created. Construction projects included the new outdoor athletics stadium, Tang Museum, and expansions of Scribner Library, Dana Science Center, and Case Center. Admissions figures, from selectivity in acceptances to the SAT scores of enrollees, all improved.

Gifts that live forever
“It’s easy to get caught up in numbers,” says Michael Casey, vice president for advancement. “But behind every endowment dollar is a generous person doing something for Skidmore that enhances another person’s experience here. And endowment gifts don’t go away—they create a legacy that lives on forever, as do the names of the donors.”

Those who have arranged a deferred gift, such as a trust or bequest, are recognized with membership in the Josephine Young Case Associates. There are now about 550 Case Associates, and thirty to forty more are added each year, according to Donald Blunk, gift-planning director. As Skidmore’s alumni body matures (in the 1970s Palamountain liked to quip that “90% of our alumni are still living…but we’re working on it!”) and a new campaign gets rolling, Blunk hopes to double the number of Case Associates by 2010.

Lucy Skidmore Scribner, Skidmore’s founder, set the ultimate giving example. Between 1916 and 1922, she transferred about 85% of her personal fortune to the school, including $450,000 in stocks and bonds, which formed its first endowment. During the college’s first fundraising campaign, Mary Roberts Teare ’28 sold Hershey candy bars from her dorm room to raise money for the endowment; others sold lampshades, pillows, grapefruit, garters, and skis. Students held bazaars, shoveled sidewalks, and organized dances, raising more than $7,000 in coins.

Fast-forward to the year 2000, when Kathryn Wiecking ’53 left her alma mater a $7.9 million bequest—the largest gift in Skidmore history. Classmates (many of whom had helped her through her final battle with cancer) and college officials were awed by “the legacy of generosity and love that her bequest symbolizes,” said Suzanne Corbet Thomas ’62, chair of the board of trustees. Wiecking helped maximize the impact of her gift by leaving part of it unspecified as to use, so it can be put toward any new college priorities as they evolve. In 2003 the college renamed Skidmore Hall in Wiecking’s memory.

Taking a blood oath
Every endowment gift is grounded in trust—a fiduciary compact that the college will steward the funds wisely into the future. At Skidmore investment management has long been a particular strength. In fact, nearly 60% of the $100 million-plus increase in the endowment between 1994 and 2003 came from interest and other investment gains; the 1993–2003 compound annual rate of return was 10.1%, far surpassing the Standard and Poors 500 (which was outperformed by Skidmore’s equities portfolio in seven of the past ten years). Particularly noteworthy is the respectable growth during the very slow bear market of the past three years, when many colleges lost money, sometimes big money. In 2001, 2002, and 2003, the average returns for college and university endowments nationwide were –0.8%, –4.3%, and –0.3%, while Skidmore’s numbers were +14.9%, +1.1%, and –1.3%. In its peer group, Skidmore was alone in posting an endowment gain over those three years, with a $20 million increase.

Trustee emeritus Myles Cane, who chaired the investment committee in the 1980s, credits his successors for the past decade’s remarkable performance. Skidmore parents Arthur Zankel and Edgar Wachenheim, both holding Harvard MBAs and overseeing investment firms, “were very active in the investment community, very plugged in,” says Cane. Skidmore VP Karl Broekhuizen adds, “They helped steer Skidmore to a more professional and successful pool of investment managers who were working for firms that normally wouldn’t do business with colleges. And they helped us diversify into countercyclical and market-neutral investments, which was a big plus during the recent market downturn.”

Wachenheim recalls, “In 2000 I became very concerned about excesses in growth sectors of the market. We took action to eliminate our exposure to speculative, technology, and growth stocks and cut back equity exposure overall. That’s why our endowment performed so well during the recent correction.” In 1999 Skidmore’s investments were about 25% in fixed income (cash and bonds), 60% in equities (stocks), and 13% in low correlatives (alternatives that don’t correlate with stocks and bonds); by comparison, today’s distribution is more like 22%, 45%, and 33%.

The aggressive moves that helped Skidmore evade the bear were unusual tactics. Typically, says Wachenheim, “it’s very difficult for committees that meet a few times a year to be able to effectively switch funds.” Instead they should rely on excellent investment managers, he says, and not try to “outguess the direction of the market.” As Zankel puts it, “I knew we would win if we didn’t lose our nerve. I had all ten of us take a blood oath that we would never sell stocks when the market was down—because that’s the way to get killed.”

According to today’s investment chair, Oscar Tang—another Skidmore parent (and spouse) with a Harvard MBA who directs an asset-management firm—“The investment environment is more complex. If economic projections are accurate, good returns will be very difficult to come by. It’s no longer primarily domestic equities and fixed income; we’ll need to take advantage of alternative investment vehicles. The challenge is to diversify our portfolio and pick good managers in each area.”

Noses pressed to the glass
As Wall Street activity moderates, Skidmore’s fundraising efforts are swinging into high gear. A major campaign is in the offing, with endowment as a key goal. The campaign’s preliminary goal of $150–200 million will include some $75 million in endowed funds for priorities such as financial aid, faculty salaries, and academic programs.

Those gains will certainly move Skidmore toward what board chair Sue Thomas sees as a worthy goal: a doubling of the college’s endowment within the next decade. That’s what’s necessary, she says, to maintain the momentum Skidmore enjoys today. Of course, other colleges are mounting campaigns too; Skidmore won’t catch up to the wealthiest schools. But Zankel says, “Our endowment could, should, probably will get comparatively better—over the very long term. We keep pressing our noses against the glass, and we may make it.”

More dramatic is what Skidmore does with what it has, which by all accounts has been extraordinary. But Glotzbach, for one, is ready to turn a corner and leave behind the doing-more-with-less legacy. He says, “A trustee recently observed that Skidmore has historically sought individual excellence within a context of institutional limitation. But this is an excellent institution—on the way to becoming an outstanding one. It’s time to stop accepting a culture of limitation, and to begin supporting our operations at a level commensurate with their quality.”