The Gift That Keeps on Giving
Under Macalester’s hood, usually unnoticed, is an engine that keeps the college moving forward. It’s called the endowment. Like any engine, it needs fuel.
Madison Mack ’12 began her junior year at Macalester this fall. A
biology major with an emphasis in biochemistry, she spent the summer
working in Professor Devavani Chatterjea’s lab, researching the
role played by a particular kind of white blood cell—called a mast cell—in inflammation and inflammatory pain. Mack will continue working in the lab this school year as part of a work-study program that last year paid her to serve as a science tutor for fellow students.
Mack’s education is being subsidized by more direct forms of financial aid, as well. Among other grants, she has received Macalester’s faculty/staff scholarship. Taken together, all of that aid—the scholarships, the summer fellowship in Chatterjea’s lab, the ongoing work/study program—does not cover the entire cost of tuition and fees. But it makes a big dent. For Mack, it makes Macalester possible. “I definitely could not have come here without the financial aid I receive,” she says.
What makes much of this financial aid possible, in turn, is Macalester’s endowment. That’s where the bulk of financial aid money—and indeed much of the college’s operating budget— comes from.
Mack is bright, articulate, talented, and ambitious.
She sings in the choir. She’s active in the
campus group Women in Science and Math. She’s precisely the kind
of student Macalester wants today as an undergraduate and tomorrow
as an alumnus. Other colleges felt the same way about Mack, who
comes from a middle-class Missouri family and graduated third in her suburban St. Louis public high school class. She applied to other small liberal arts schools, which also offered “fairly good” aid packages. If Macalester had not made itself affordable, she says, “I probably would have chosen one of them.”
How the Money Moves
The cash flow from Macalester’s endowment—a fund that rises and
falls with market conditions but was valued in late August at $585
million—allows the college to compete for top students like Mack.
And “students like Mack” means helping a lot of quality kids. Of the nearly 2,000 undergraduates on campus this fall, about 70 percent receive some kind of financial aid.
That includes most international students, who make up 11 percent of the undergraduate population—a category in which Macalester ranks seventh nationally among liberal arts colleges. Macalester president Brian Rosenberg notes that the international flavor of its students and faculty has been a particular point of pride for the college since one of his predecessors, Charles Turck, raised the United Nations flag on campus in 1950.
According to U.S. News analysts, Macalester is one of only 70 U.S. colleges and universities nationally that meets 100 percent of a student’s demonstrated financial need—“need” being documented by a standard national formula. Among 2008 graduates, Mac students emerged with the lowest student debt burden of any college or university in Minnesota, public or private. Among students who receive aid, the average package amounts to more than $30,000 per year (out of a total tuition plus room and board cost of $49,000).
“It’s important to us as a college to have a student body that is not monolithic,” says David Wheaton, vice president for administration and finance. “We need some breadth and depth in the student body to get a variety of perspectives. A range of geographic backgrounds and personal histories among students and faculty makes everyone’s experience that much richer.”
The shorthand term for this concept is diversity. Macalester’s endowment enables the financial diversity among students that is a prerequisite for other kinds of on-campus diversity.
Keeping Up with Our Peers
Even if this were all there were to say about the endowment’s role in the life of the college, it would seem peculiar that Macalester’s alumni lag in contributions compared to other liberal arts colleges’ alumni.
In the five years from 2005 to 2009, gifts to endowments at the country’s top 40 liberal arts colleges—Macalester’s peer group—averaged $11.6 million per year, according to figures compiled by the Council for Aid to Education. Gifts to Macalester’s endowment, on the other hand, averaged less than half that amount: $4.15 million.
As it happens, the financial-aid piece, while crucial, only begins to explain the fundamental role that the endowment plays in helping the college achieve excellence.
Keeping the Lights On
Tuition paid by students covers 60 percent of Macalester’s operating budget. Another roughly 6 percent comes from current-activity contributions, most notably to the Annual Fund, and from miscellaneous revenue sources. The remaining third of the operating budget comes from the endowment. Last year’s $31.2 million payout from the endowment represented 34.5 percent of the college’s $90.5 million total annual budget.
What does the operating budget pay for? Practically everything
the college does, says Wheaton. It’s easier to explain what the operating
budget doesn’t fund. Certain targeted grants from sources such
as the National Science Foundation don’t go into the operating budget. Neither does money
generated in fund-raising drives for capitalimprovement projects, such as the current push to expand and renovate the Janet Wallace Fine Arts Center.
But the operating
budget represents just
about everything else,
Wheaton says. All faculty
and staff salaries come out of the operating budget. So does all
student financial aid. (Funds generated by “restricted” gifts such as
endowed faculty chairs and special scholarships are directed to those
purposes, but they flow through the operating budget.) The operating budget pays to light and heat all campus buildings. It pays to run the library. It pays for supplies, mailings, student activities and organizations, and faculty scholarship and research.
Since the endowment funds a third of the operating budget, the short answer to “Why is the endowment important?” is that without it, Macalester would be almost unrecognizable. “Without funding from the endowment, the quality of everything we do would diminish,” says President Brian Rosenberg. “The quality of the education we provide for students would diminish. Financial aid would shrink dramatically. Our faculty could not be what it is…. Our aspiration is to provide one of the best educations in the world, and we couldn’t even think about doing that without our endowment.”
Kathleen Murray, Macalester’s provost, points out that two years ago the college did faculty searches for 16 open positions, “and with each of those we got our top choice.” Mac did so well not only because it could pay competitively, she says, but because “faculty members are drawn to a place that’s financially stable. They know that our endowment keeps Macalester strong and safe.”
Officials’ concern about the endowment is not that the fund is puny. Actually it’s the largest of any liberal arts college in Minnesota, slightly bigger than that of Carleton College. Macalester’s endowment ranks a respectable 15th among the 40 national colleges in its peer group, according to a 2009 study by the National Association of College and University Business Officers. (At the top of that list was Williams College in Massachusetts, with an endowment valued at $1.4 billion. In a bad year for the market, that figure was down significantly from 2008.)
The challenge with the endowment is, as Vice President for Advancement Tommy Bonner puts it, “If we don’t grow it, over time there’s a slow eroding. We admit as many students as possible, regardless of financial need, to get the brightest kids from around the world. If we’re not growing the endowment, either access suffers—we admit fewer students—or quality and faculty resources suffer.”
Whereas 70 percent of Macalester students receive need-based financial
aid, perhaps only about 40 to 50 percent of students at many
East Coast liberal arts colleges do, Bonner says. This suggests that
students in Mac’s peer-group schools tend to come from wealthier families, who are more able to make gifts and other contributions.
Life after Wallace
Officials say there’s a lingering perception among some alumni and friends of Macalester that the college’s endowment is enormous and set for eternity. That impression is strongest among alumni who are less engaged with the college, Rosenberg says, but it is persistent. It springs from a famous gift from Reader’s Digest founder and Macalester benefactor DeWitt Wallace. “The biggest headlines Macalester got in 30 years were about the Wallace gift,” says Rosenberg.
More precisely, the headlines had to do with events following the Wallace gift that resulted in Macalester possessing—briefly, on paper, in the mid ’90s—the largest endowment of any liberal arts college in the country. DeWitt Wallace, Class of 1911, was the son of James Wallace, an early Macalester president. DeWitt died in 1981, leaving to Macalester’s endowment 500,000 shares of Reader’s Digest stock. The company—and, therefore, the stock—was privately held.
As Craig Aase ’70, Macalester’s chief investment officer, explains, Reader’s Digest went public in 1990. At the time, Macalester’s endowment stood at about $70 million. The private stock split 20 for one, giving Macalester 10 million shares. The college was allowed to sell 20 percent of those shares in the initial public offering. More chunks were sold periodically over the next several years. By the mid-’90s, when the stock price peaked at about $50 per share, the endowment’s valuation rose to more than $500 million.
One small problem: About half the paper value, Aase says, was in
unregistered Reader’s Digest stock that the college was not allowed
to sell. Macalester still held 40 percent of its original shares in 2001,
when it began to sell off the last blocks. However, by that time the stock’s value had plummeted.
Riding the Stock Market Rollercoaster
The endowment’s value peaked at $700 million in October 2007, the
height of the market, says Aase, and then roughly followed the market
down through the crash of 2008 to a trough of $475 million in
February 2009. It has since recovered to its present value of $585 million (as of late August).
Virtually all college endowments lost value in their 2009 fiscal year,
when global stock markets declined 30 percent. Macalester’s endowment
return was -13.4 percent and the average endowment return for
that same period was -18.7 percent. Mac’s performance over the past five
years is now in the top 10 percent of all endowments and foundations.
Aase credits Macalester’s investment strategy and its management
of endowment payouts for what, in relative terms, has been an
excellent performance in a rocky economy. The endowment maintains
an investment balance of 45 percent stocks, 15 percent government bonds, and 40 percent in diversified assets such as real estate, private equities, and hedge funds. By holding steady to its stock position regardless of general market conditions, the endowment benefitted from the rally that followed the market’s low point in February 2009.
As for managing the payout, each year the endowment
pays into the operating budget a sum
equal to 5 percent of its average value over the previous four years—or roughly $30 million a year recently. In 2007 and 2008 that formula was allowing yearly payout increases of 10 and 11 percent because of the endowment’s rising value during the four-year baseline period. Instead of spending it all, Aase says, college leaders held a healthy portion in reserve—a move that proved wise.
The upshot is that while Macalester instituted a salary freeze in 2009 (lifted earlier this year), says Aase, it wasn’t forced to make staff reductions and other dramatic cuts during the economic downturn as institutions like Williams and Harvard were. “People who contribute to our endowment can be assured that it’s well managed,” he says.
Where’s the Love?
It isn’t only in contributions to the endowment that Macalester supporters lag the peer-group average. In light of what is happening at competitive schools, overall contributions are lackluster as well. Total giving from 2005 to 2009 at the top 40 liberal arts colleges averaged $26.5 million a year, according to figures from the Council for Aid to Education. Macalester’s average of $14.7 million places it 33rd on that list.
In gifts to endowments, Macalester’s five-year average of $4.15 million ranks 36th. In unrestricted contributions to current operations (think primarily of the Annual Fund), Macalester averaged $2.8 million. The peer group average was $5 million.
In 2010 (as counted at the end of the fiscal
year on May 31), Macalester received $16.3 million
in total gifts. To continue competing with its peer group, says Bonner, the college needs to raise
its annual average above $20 million. The five year median figure for the peer group was almost
Complicating the issue is the fact that more
than half of total gifts directed at Mac over the past
several years have gone toward building projects— notably the Leonard Center, Markim Hall, and the
Janet Wallace Fine Arts Center. Rosenberg readily concedes that more money might have flowed into the endowment if fundraising efforts hadn’t directed it instead into capital projects.
Once the second phase of the Fine Arts Center project is complete,
however, no major construction efforts are on the drawing
board. Fundraising efforts will increase their emphasis on the need to
replenish and grow the endowment.
Another priority, Rosenberg says, is to increase the number of
alumni who contribute to the college. Thirty-nine percent of Macalester
alumni made some kind of contribution in 2009. That ranks the
school 25th among the Top 40 liberal arts colleges, according to U.S. News. (Carleton ranks first, with 61 percent of its alumni giving.) In the near term, raising the raw number of contributors will benefit the Annual Fund more than the endowment, Bonner explains. Most endowment gifts come in wills and bequests, not in the form of annual contributions. “But if someone gets used to giving to Macalester regularly for 10 years or so, it may become a thought in estate planning.” Such is the hope, at any rate, if the doors are to remain open to kids like Madison Mack.