Endowment plunges $220 mil. in 3 months
By Turia Lahlou, The Dartmouth Staff
Published on Monday, November 10, 2008
Dartmouth's endowment fell 6 percent, or $220 million, in the first quarter of the current fiscal year, which began July 1 and ended Sept. 30, Ed Haldeman '70, chairman of the Board of Trustees, said in an interview with The Dartmouth. The Board learned of the drop, which now leaves the endowment at $3.44 billion, during its November meeting last weekend, but the extent of the endowment's October decline is not yet available, according to College President James Wright.
In order to maintain a balanced budget, the College will not lean on large-scale tuition increases and will not try to identify new revenue sources but will instead focus on reducing expenses, Wright said in an interview with The Dartmouth. The Board will hold on to its core values, although it recognizes the need for a balanced budget in the long run.
"If our budget is out of balance slightly for a year, that is acceptable, but it cannot be out of balance over any period of time," he said.
Financial aid, which the Board identified as a "core value of the College," will not be affected by budget cuts, Haldeman said.
Due to poor endowment returns, several leading institutions, including Tufts University, may not be able to uphold their commitment to need-blind admissions, The New York Times reported Friday. Dartmouth currently has no such plans.
As the economic crisis impacts families of Dartmouth students, the College may need to devote more resources to meeting their demonstrated needs, Haldeman said.
"If you are going to protect [core values], then you've got to look elsewhere," Haldeman said. "There will be places we have to make the hard decision and President Wright and his team will be articulating those areas."
Wright expects to release more information next week about how the College will "tighten our belt" through budget cuts and reduce the amount by which the College increases its expenses.
Dartmouth relies on its endowment for 36 percent of the College's budget, he said. The growing dependence on the endowment has allowed the College to rely less on tuition to cover its expenses, a strategic objective of the Board of Trustees, according to Wright.
"It's not going to be easy or pleasant, but I think it's a necessary step we have to take right now," Wright said. "We have a financial and a fiduciary responsibility to protect [the endowment], an obligation to donors and to generations of Dartmouth students to come," he added.
The College's endowment is spread over several kinds of investments -- only 20 percent is in the U.S. equities market -- Haldeman said. Typically some of the College's asset classes grow while others may fall, but in the current economy, stocks, bonds and all other asset classes have declined. As a result, all diversified portfolios, including Dartmouth's, have done more poorly than expected, Haldeman said.
Wright said that the diversity of the College's investments could eventually prove beneficial.
"I don't think anyone can predict accurately who will be leading in the comeback over the next several months, but I think our diversity will stand to our advantage then," Wright said.
The cost-cutting measures come as the Campaign for the Dartmouth Experience -- a seven-year capital campaign that aims to raise $1.3 billion by the end of 2009 -- has reached the $1.15 billion mark and is approximately 90 percent complete. Dartmouth is fortunate to have begun its campaign in July 2002, instead of in the current economic climate, Haldeman said.
"The environment is challenging," he said. "We spent time with [Vice President for Development Carolyn Pelzel], and we know it's challenging, but we remain optimistic we will achieve that goal in the time frame established."
Haldeman urged undergraduate students to remember the "anxiety that they feel now" so that when they are in a position to give to the College later in life, they will continue the "chain of support" that allows Dartmouth to "sustain the core values of the institution during these difficult periods."
"It is very comforting to have that asset that we can rely on," Haldeman said, referring to the endowment. "In the zone of 5 percent is available to be spent each year. We are indebted to prior generations of Dartmouth graduates for having that."
Haldeman said the Board is nonetheless confident about the strength of the investment portfolio and its leadership.
"We structured the portfolio knowing there would be some very difficult times, and one doesn't want to overreact to these difficult times," Haldeman said.