Myths and Realities of the Macalester Endowment

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Macalester College
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This "Household Words" column appeared in the Winter 2007 issue of Macalester Today.

By Brian Rosenberg

Few things about Macalester are more broadly misunderstood than the size, history, and function of the college’s endowment. Given some of the attention recently directed toward Harvard’s endowment—which has ballooned to nearly $35 billion—this seems an opportune time to address some of the pervasive myths about Macalester’s far more modest endowment.

Myth #1: Macalester has the largest endowment of any liberal arts college in the country.

This was indeed the case—in 1992. At the time, largely due to the public sale of a small portion of Reader’s Digest stock given to the college by DeWitt Wallace, Macalester’s endowment— about $475 million—was larger than those at other colleges of similar size and mission, including even such premier institutions as Williams, Amherst, and Swarthmore.

This is not true today. Macalester’s endowment at the close of the 2007 fiscal year stood at about $676 million. Although complete information for other colleges was unavailable at this writing, that sum ranks Macalester about 18th among liberal arts colleges nationally. The largest endowments among such colleges include those at Grinnell, Pomona, and Williams, each of which is more than $1.6 billion.

Myth #2: Macalester’s endowment has lost value compared to those at other colleges because of weak investment strategies.

Nothing could be further from the truth. By far the largest portion of Macalester’s endowment in 1992 was made up of Reader’s Digest stock that was externally managed and that the college was legally restricted from selling unilaterally. The poor performance of that stock and its consequent negative impact on the Macalester endowment were entirely beyond the control of the Board of Trustees, the investment committee, or anyone else at the college. Indeed, throughout this period the remainder of the endowment was prudently managed. Because of these restrictions, Macalester’s endowment remained flat over the course of a decade during which many college endowments tripled in value due to the run-up in the stock market.

Myth #3: Macalester’s endowment continues to include a good deal of Reader’s Digest stock.

Today the college owns almost no stock in Reader’s Digest. An agreement reached in 2001 following an investigation by the New York State attorney general turned over control of the stock to the college, which then began an orderly process of selling that stock and diversifying its investment portfolio. Over the past six years the college’s investments, guided by the Board of Trustees’ investment committee and Chief Investment Officer Craig Aase, have performed very well compared to any set of benchmarks and are today performing as well as or better than endowments of similar size. The central goal of the investment strategy is to maximize returns while limiting risk and volatility.

Our endowment’s assets are now invested in a mix of equities, alternative investments, and fixed income vehicles. The investment return on the Macalester endowment for the fiscal year ending June 30, 2007, was nearly 21 percent, placing us in the top quartile of endowments of a similar size and nature.

Myth #4: The Macalester endowment is large enough to meet all the college’s financial needs.

I wish this were true. Each year, Macalester’s operating revenues include 5 percent of the value of the endowment, averaged out over the previous four years. This formula is designed to support the activities of the college while preserving the value of the endowment over time and thus being responsible to those who will benefit from Macalester in the future.

Overall, our endowment revenue funds less than 40 percent of the college’s operating budget. The remainder comes from tuition and fees and annual philanthropic support. This revenue does underwrite the education of every student at Macalester and enable us to spend more on educating our students, but it does not obviate the need for tuition or donor generosity. If we were to rely entirely on the endowment to fund our operations, it would be quickly exhausted.

The generosity of DeWitt Wallace allowed Macalester to aspire to levels of excellence and access that would not otherwise have been possible. His intention, however, was not to relieve future stewards of the institution from all responsibility, but to inspire us to build upon his aspirations for the college.

I realize that discussions of such matters are less compelling to many people than are discussions of student accomplishments and faculty research. But it’s important for everyone with a stake in Macalester to understand the basic financial underpinnings of the institution and to have confidence that our resources are being carefully and thoughtfully managed. I can assure you that they are.