Wick Sloane ‘76 writes with questions about the endowment. I have answers.

I’m sure there’s a hard way to do this. Then, there’s the easy way: Ask David.

Indeed! Questions are always welcome.

What is the asset allocation of the Williams endowment? How much bonds, equities and then the fancy stuff — hedge funds, private equities and all?

Page 3 of this pdf provides the answer.

(Thanks to reader DB for the graphic. Click for larger version.) 50% in global equities will not have generated very good returns in the last few months. 12% in bonds (fixed income) may seem low but is consistent with the advice offered in Pioneering Portfolio Management by David Swensen, CIO of the Yale endowment and far-and-away the most successful endowment manager in the world.

(PPM is required reading for anyone interested in endowment management. Alas, it is slow going. Swensen argues that fixed income investing is a bad idea for endowments. Previous comments on Swensen here. Yale has only 4% of its money in fixed income.)

Private equity, venture capital and absolute return make up 25% of the portfolio. It is tough to know whether the 12% in real assets (commodities?) and real estate is invested passively, just to get exposure to these asset classes, or in hedge funds which are trying to beat some passive index. More transparency please.

An acquaintance mentioned that Williams recently did a review of its asset allocation, perhaps in conjunction with the hiring of CIO Collette Chilton in 2006. He even mentioned the name (which I forgot) of the consultants who worked on it. It would be interesting to see a copy of the report that was produced.

Overall the asset allocation is reasonable, although still quite different from that of Yale. Is Collette Chilton smarter than David Swensen? Time will tell.

Which brings me to the questions I shall put once I have dug this up -

Since this market adjustment, has the Williams endowment gone up, stayed the same, or gone down?

The endowment has almost certainly been crushed from June 30 through today. (See here for a discussion of how one might derive a rough estimate. An ambitious student from Purple Bull ought to volunteer to work with me on making this estimate more precise and updated daily.)

The only public data we have are the results for the endowment for fiscal 2008, ending June 30, 2008. The endowment was down 5%. The members of the investment committee certainly receive (or could receive) quarterly updates. You should call the investment office and ask to see the same reports that they get. Tell us what happens!

Why, you will ask in one of your delightfully vilifying comments, am I dumb enough to ask?

Glad you asked. If an institution with no plans for substantial growth is fortunate enough to have an endowment about 18 times its operating budget, what is the appropriate risk position for the endowment? Why not put it all in inflation adjusted US Treasuries, count your blessings, and sit down on a log with a few students? Totally too conservative?

The standard answer is that the expected life of the endowment is forever, so there is no need to be “conservative.” The College would rather average 8% real return per year (with some very bad years and very good years) than 3% over the next 50 years. It is precisely the wealth of Williams that allows it to be so risk-seeking. If occasional years of down 25% are the price to be paid for this excess return, then so be it.

The trickier issue is just what risk-seeking really means in this context. Swensen has moved 29% of Yale’s endowment into real assets. (Background discussion here (pdf). Why is Williams at 6%? Perhaps Collette Chilton knows something that David Swensen does not . . .

OK, 15% in equities of varying sorts. Even I know that the amount anyone has in equities should not exceed by one cent what that person/institution can afford to lose. So, by definition, if Williams are saying this crisis has been a crisis for Williams, well, shouldn’t the trustees on the investment committee resign?

No! That is crazy talk. The Williams endowment has had down years in the past. It will have down years in the future. We can afford to take smart, long-term risks. If Williams had followed the maximum-safety approach starting 50 years ago that you seem to be recommending (90% of the money in T-bills?), the College would be much less wealth today. (How much less wealthy is left as an exercise to the reader.)

If the endowment went down enough to have everyone in a panic and, as Ephbloggers say, to end the days of new buildings, then, wasn’t too much invested in equities? Meaning, more than Williams could afford to lose.

In the context of Columbia’s endowment, Professor Ralph Bradburd is more sanguine.

In the current volatile economic climate, it is hard to peg exactly how Columbia’s endowment has fared, but Bollinger acknowledged that “we’re not doing as well as we did two or three years ago.” However, economic indicators have dropped sharply lately—last week alone, the Dow Jones Industrial Average dropped by 7.3 percent and the S & P 500 by 10.3 percent, the worst week in seven years.

In the short term, that doesn’t spell disaster, according to Ralph Bradburd, an economics professor at Williams College, who studies higher-education finance. That’s because universities typically spend from their endowments at a constant rate each year, which takes into account both sluggish and strong years.

“Let’s say the endowment fell by 15 percent this year—which is not outside of the question depending on how the university invested. Spending might not change much,” Bradburd said. “If you have three years [of losses], you might do something.”

Correct. It all depends on how you think the endowment will do over the next year or ten. Unfortunately, the two main sources of endowment growth (investment returns and alumni contributions) are highly correlated. If the markets are down and stay down for the next few years, returns will stink and alumni contributions will be lower than they otherwise would be. (The class agent mailings already express a great deal of nervousness.)

What happens if the Williams endowment is down 25%, and then stays down for several years? How likely is that scenario? Tough to know. I have been a bear since 1994, so don’t look to me for guidance. If I were a trustee, I would be concerned. I would give serious thought to delaying the renovation of Sawyer for at least a couple of years.

There are 100 odd educational endowments that are comparable to Williams. As far as I know, our endowment was at the very bottom in terms of performance last year. Cause for concern? Perhaps. But there is no excuse for the lack of transparency in endowment allocation and performance. Why keep secrets if you have nothing to hide?

Wick Sloane ‘76 writes on the financial crisis.

Do any of us really how close we are to finding even our checking accounts empty or inaccessible? The press must ask this.

Acres of press coverage of the financial crisis continue to focus only on financial risk, not operational risk. Financial risk is whether a share in Company X worth $100 today will be worth $150 or $75 tomorrow. Operational risk is whether, if we sell the share for $100 today, we will ever receive the $100. Operational risk is whether the capital markets can complete the transactions required for our employer to have cash to meet the payroll and to complete the electronic funds transfer of our paycheck so that on payday we can put our debit card into the gas pump for a few gallons of $4 gasoline on the way home.

Call this crisis, for example, Hurricane Katrina. The financial risk is the severity of the storm. The operational risk is whether the levees will hold back the water. A financial transit system of staggering complexity moves the money through the global markets to our checking account to the gas pump and back again. How is this system doing in the hurricane?

Follow Wick down the rabbit hole for more. Anyone who really wants to hedge this sort of risk ought to have a cache of emergency supplies (cash, food, water, rifle, et cetera) in his house. My take? Sounds like the sort of crazy talk that you hear at a market bottom. Then again, I never thought that Lehman would go bankrupt . . .

If Wick Sloane ‘76 were to meet with Bill and Melinda gates on the topic of education, here is what he would say.

No one has done better than Gates with a plan for “The Problem Too Big To Be Seen,” the crisis of the work force and community colleges, than the February 2008 Gates Foundation paper “Post-Secondary Education+: An initiative to dramatically expand social mobility in America.” A friend at Gates sent (not leaked) the paper to me a few of weeks ago. The paper, at Gates’s now-familiar New Deal scale and ambition, offers two key conclusions.

“First, our research revealed that a high-leverage intervention point in breaking the intergenerational transmission of poverty is to focus on young people in the critical decade between ages 16 and 26, as they make the transition to adulthood and as (or before) they become parents themselves. Second, our research showed that if one were to choose the single most important lever for improving the life prospects of these young people and their children, it would be to help young adults earn educational credentials beyond a high school diploma.”

Right on, Bill and Melinda.

If you really want to know the effect of providing more schooling, you would run a randomized experiment. Take 1,000 students, randomly offer 500 of them free tuition (or income support or whatever goo-goo intervention you like) and then, a few years later, compare the 500 who received the intervention with the 500 who didn’t. Odds are, you won’t see much/any effect. But that is an empirical question that the Gates Foundation ought to investigate.

Another fine article on war, veterans and education from Wick Sloane ‘76 writing in Inside Higher Ed. Read the whole thing, but here is the only Williams mention.

In helping a Bunker Hill Iraq veteran who will attend Dartmouth College this fall, I had communicated with James Wright, president of Dartmouth. Wright, an ex-Marine, has been visiting wounded veterans in Washington hospitals with James Selbe, another ex-Marine leading veterans’ issues for the American Council on Education. ACE last month had a two-day summit, “Serving Those Who Serve: Higher Education and America’s Veterans (see related essay). Dartmouth has wounded veterans attending.

…

The public institutions are in the lead. I rounded up the usual suspects from the privates, to see if any were following Jim Wright’s lead.

From Princeton: “The University has no records of current American students who are veterans of wars. While we have students who receive veterans benefits, they do so as dependents of service members, rather than as service members who served in the military. Our office of financial aid hasn’t processed any GI Bill benefits in recent memory (dating back the past two decades approximately).” Yale has not yet replied. Yale president Rick Levin and Joel Podolny, Dean of the School of Management, about a year ago, ignored my several queries asking if Yale was recognizing alumni or students who were veterans. From Williams: “As far as we know, we do not have any veterans of the Iraq war enrolled at Williams. We do have Iraq veterans working on staff — one who saw three tours of duty.”

Comments:

1) In our discussion last week on the Webb GI Bill, Frank Uible ‘57 wrote:

I would like to hear a McCain supporter’s version of the reason for McCain’s opposition. It appears anti-intuitive.

I am not a McCain supporter, yet I can understand his opposition to this bill. Instead of giving more money to veterans that they can only spend on education, I would rather see us give them the same amount of money that they can spend on anything at all. Not every enlisted soldier wants to go to college; not every office wants a Ph.D. (What I used my GI Bill money for.) Moreover, the extra funding should not go to veterans in general but should be focussed on those serving in the most dangerous, combated positions.

2) Unlike Wick, I am not particularly upset that Williams does not do anything to (specially) recruit veterans. Of course, I would like to see more veterans at Williams and would vote in favor of the College seeking them out. But I recognize this as special pleading on my part. Doing what Jim Wright does for Dartmouth takes time and money, both of which are always limited. It would not be hard for Williams to do more (mainly reach out to the various programs/departments which help veterans transition out of the service), but it is not unreasonable for the admissions office to devote its energies elsewhere.

3) The main change that I would like to see is to have an Eph veteran awarded a Bicentennial Medal each year for the next 5 or 10 years. You can call this quota, if you like, but there is no doubt (in my mind) that Ephs like Bunge Cooke ‘98, JR Rahill ‘88, Kathy Sharpe Jones ‘79 and others have demonstrated “distinguished achievement” in their fields of endeavor. Williams should honor them. Write to Secretary of the Alumni Society Brooks Foehl ‘88 if you agree.

An unusual poetry slam.

Educational wonkery as…poetry? Inside Higher Ed columnist Wick Sloane has accepted an invitation to read from his work 7 p.m., Friday, June 27, 2008, at La Luna Caffe, Cambridge (where else?) as part of the acclaimed City Nights Reading Series. Wick will read from his column, “The Devil’s Workshop,” including selections from Common Sense or The Bachelor’s Degree Is Obsolete?, the pamphlet published by Inside Higher Ed in May. Copies of the pamphlet are downloadable free at IHE or hardcopy at the Harvard Bookstore, where owner Frank Kramer, has confirmed that Common Sense is not only on sale but also selling.

If you go, say Hi to Wick from all his fans at EphBlog.

Wick Sloane ‘76 on community college graduations.

What’s lost in the noise around community college graduation rates is community college graduations. My first community college graduation was in 2002, at Windward Community College in Hawaii.

That evening at Windward, the graduates came up the stairs on the right side of the stage, received their degrees, walked across the stage and down the stairs on the left. At the bottom of those stairs, a little girl, eight or nine years old, was waiting. She was holding a lei. When her father came down the stairs with his diploma, he bent over to let her put the lei around his neck. He picked her up and, diploma in one hand, daughter in the other, ran to his wife who was waiting to hug them both. These upside-down scenes at community colleges, with parents as the graduates, are my favorites.

Read the rest for some nice stories.

Fun article from Wick Sloane ‘76 on the role of trustees at schools like Williams. Best part is this quote from Upton Sinclair.

You take it for granted that this money is honestly and wisely used; that the students are getting the best, the “highest” education the money can buy. Suppose I were to tell you that this educational machine has been stolen? That a bandit crew have got hold of it and have set it to work, not for your benefit, nor the benefit of your sons and daughters, but for ends very far from these?

Indeed. I have it a good authority that a Williams trustee “blew a gasket” after reading this article.

A little gasket-blowing is usually good for the soul.

Wick Sloane’s ‘76 latest column in Inside Higher Ed highlights the marvelous pamphlet (pdf) that he has written in the spirit of Thomas Paine.

Common Sense calls for an American educational revolution for the 21st century. The bachelor’s degree is obsolete and expensive. That degree started in the 14th century, before Gutenberg, when the pedagogical constraint was the shortage of books. Instead, the nation should focus federal, public funds on being sure that by twenty-one years old, everyone has the critical thinking and language and quantitative skills to pass the Advanced Placement Exams in English Language and Composition and in Statistics.

Wick and I disagree about most things, but there is little doubt that he is right about this. College is a cruel hoax for many of those convinced to attend, and tricked into large amounts of debt while doing so. The notion that even 50% of the population, much less “everyone,” should get a college degree is as ludicrous as the claim that “everyone” should get a masters. Why not require that everyone get a Ph.D.? Educational romanticism does much harm, the good intentions of those who prattle such nonsense notwithstanding.

So, every dollar that the federal government devotes to subsidizing the college should be devoted to high school. Given the power of the college industrial complex, the odds of this happening are close to zero. But I hope that Wick keeps up the fight!

Did you know that college baseball was born in Pittsfield?

It was a simple gesture, an act of kindness done to settle a dispute that over time became history.

When Amherst College challenged rival Williams to a “friendly game of ball” in the summer of 1859, the two schools couldn’t agree on a site until the Pittsfield Base Ball Club stepped up and offered its playing grounds, a field located near the intersection of Maplewood Avenue and North Street.

That is how Pittsfield came to host the first intercollegiate baseball game ever played in the United States. Next Saturday, the College Baseball Hall of Fame intends to recognize Pittsfield for that achievement.

A representative of the College Baseball Hall of Fame, former major leaguer Neal Heaton, will officially commemorate Pittsfield as the “Birthplace of College Baseball” before Williams and Amherst play each other at 1 p.m. at Wahconah Park. Admission is $5 for adults and free for children.

The Hall of Fame, which is located in Lubbock, Texas, will also make up a special sign for Wahconah Park that contains the logo “Birthplace of College Baseball.” The first known reference to the game of “base ball” in North America also occurred in Pittsfield in 1791.

…

Dan Duquette, who played baseball at Amherst, his cousin Jim Duquette, a former Williams baseball player, and former Williams baseball player Mike Barbera, a lobbyist in Washington, were instrumental in setting up next Saturday’s festivities. The Duquette cousins both held general manager positions in the major leagues.

Barbera, who graduated from Williams in 1989, is a lobbyist for the America Continental Group, which represents halls of fame for different college sports. Having played for Williams at Wahconah Park — “I have a fondness for Wahconah,” he said — Barbera e-mailed the College Baseball Hall of Fame to see if they were interested in the Williams-Amherst rivalry and Pittsfield’s historic ballpark.

Perhaps one of our readers will provide a report from the game . . .

Latest from Wick Sloane ‘76.

Community colleges, I’ve found, are the emergency rooms for those struggling for the basic critical thinking and problem solving and reading and writing and calculating skills that I have taken for granted since my time at Yale and at Williams College and even before that, at Phillips Exeter Academy, where the dining halls have dessert bars and half a floor of the library for 1,000 students dwarfs all that’s available to the 8,900 at Bunker Hill Community College.

Wick writes from the heart and is always worth reading.

Wick Sloane ‘76 writes:

Having trouble finding out who decides what percentage of the student body at any given university should be on scholarship? Or how many students will have Pell Grants? Or that tuition will rise, again? Who decides, as Williams College just did, to tear down a sound student center and to build another, with tax-deducted dollars, while raising tuition? Well, how about asking the trustees who decides?

Good stuff. I rarely bother the trustees or Morty because they are busy people with better things to do than consider my opinions. But, Record reporters have a right and obligation to bother them all the time. Although the Trustees delegate most decisions to the Administration, they are involved in all the large issues. A good example was the move to a no loans financial aid policy while simultaneously refusing to meet the generosity of competitor schools like Harvard and Princeton. Consider some comments on WSO:

Wait, so a Harvard family making $120k/yr only has to to pay $12k? That’s incredibly generous. I know a lot of kids here at Williams whose families make substantially less than that and yet still pay the full $45k or very close to it.

my brother went to dartmouth & they offered him a significantly better aid package than i receive.

i think i get a real shitty deal here compared to what harvard aid offers - - who else feels the same? this is a serious matter - if we want boyer and morty to offer a better deal to middle class families, we have to demand it!

Indeed. The Record ought to do a multiple article story on financial aid at Williams. Who gets how much and why? Do most applicants admitted to Williams get better deals from places like Harvard? And, once the Record has the facts, it ought to ask the Trustees why the policy is what it is.

Wick Sloane ‘76 writes about another day in the life of a community college English professor.

“Good prose is like a windowpane,” George Orwell warned the wordy in Why I Write. In the face of a confounding situation, squirt the Windex, wipe the glass, shut up and write. This is one of those times.

Read the whole thing.

Wick Sloane ‘76 despairs.

My name is Wick, and I have been a NACUBO member.

The National Association of College and University Business Officers this week nailed at least $4 million to the fall tuition bills going out to strapped families and students this month. NACUBO gathered more than 1,000 higher education business officers and 200-plus vendors at a Mardi Gras in New Orleans…. I mean, an annual meeting, “Crossroads: New Beginnings Built on Valued Traditions.” Those traditions being, for example, free food, an umbrella from Microsoft in the registration bag and a golf tournament with the Beverage Cart sponsored by Higher One, a cash-card company, I think.

I missed the meeting. I toured the meeting Web site, and I wept. I don’t think college in the U.S. will ever be anything but even more expensive. What’s exasperating is that I like the hundreds of NACUBO members I know. These are men and women who are kind, good people. The sum of the parts, though, is a black hole.

Any Eph attendees?

Wick Sloane ‘76 has stories from the wait-list.

Let’s dispense with my first encounter. This was an entitled, highest-honor, elite prep school, Latin prizewinner, classical diploma, varsity rower, community leader, Middle East Prize winner, with APs in hard sciences and classics. Harvard deferred her early decision application to regular admission in April. In April? Wait listed. In late June? Rejected. This one is my own daughter, that’s how I know. My question: Why the six months of water torture? Take her, don’t take her. Of course I hoped she’d be admitted. In the end, what I can’t understand is the six months. She started with a worthy record and kept racking up successes. The wait, I think, was mean of Harvard but a fair fight within the social and economic strata on both sides.

My current encounter is a formerly homeless mother from Manchester, N. H., who found her way to a 4.0 average at Bunker Hill Community College and a Jack Kent Cooke Scholarship. She lives with her daughter and works four jobs. She’s on the Harvard wait list. Read for yourself this story in the Boston Globe and have a look on ABC News. A couple of weeks ago, Harvard reiterated that there is still no room, though the student is welcome to stay on the wait list. Is the wait list ranked? Where does the student stand? No ranking. If openings occur, Harvard related to the student, the committee pulls out each person on the wait list “to see if there is anything new in the file.”

New in the file? She’s already an advocate for homeless and domestic-violence victims, advising state commissioners from her own experience. What else is there? Win Wimbledon?

Never hurts.

Wick Sloane ‘76 wants to raise taxes on Williams.

Until the end of the Iraq war, eliminate tax deductions for new campus construction. Institutions are free to raise money and build away. I am only shifting the tax policy. How can we reconcile tax-deducted student centers with U.S. troops, the same age as college students, in Afghanistan and Iraq sleeping outdoors and eating meals out of plastic MRE bags? And being shot at.

…

For the hearings, when higher education piles in to tell you the U.S. economy will crumble with any shift in tax policy, do swear in the witnesses, for form if not for necessity. The trustees set the fiscal decisions. Invite, for example, Burton McMurtry, the chair at Stanford, Nordahl Bruce from Grinnell, James Houghton from Harvard, Jide Zeitlin from Amherst, Robert Lipp from Williams, Stephen Oxman from Princeton, Thomas Tisch from Brown, and Stanley Gold from University of Southern California. Your ambrosial lagniappe for this hearing, Senators, is the Senior Fellow of the Yale Corporation, Roland Betts, lifelong friend of President Bush. The Michael Brown or the Socrates of education? Trustees are the people to explain to Iraq and Afghanistan veterans and to community college students why a tax deduction for a fitness center is more important than more Pell Grants. Let these chairs explain why all the tax policies should stand when the total G.I. Bill benefits of $50,000 wouldn’t pay for a single year, including books, pocket money, and travel, at their colleges, let alone four years.

See the link for details. Wick’s heart is in the right place, but the whole idea that you can easily tax different categories of higher education spending is ridiculous. Was renovating Mission Park new construction or maintenance? How about Stetson?

Once you declare certain parts of the economy to be tax free, it becomes very hard to tax some of what it does but not other parts. Now, if Wick wanted to talk real reform, he would get rid of non-tax-paying organizations all together. If University of Phoenix has to pay taxes, why shouldn’t Williams?

Interesting article about a student from Wick Sloane’s ‘76 English class.

John Around Him is a student in the Bunker Hill Community College English class that was the subject of Wick Sloane’s last column. The class focuses on writing as a skill to manage your own destiny — a job letter, for example, or a memorandum to make something happen. One use of writing the class has discussed is the exercise of our First Amendment right “to petition the government for a redress of grievances.” As an assignment last week, John wrote the letter below to U.S. Sen. John F. Kerry (D-Mass.). As a result, Kerry met with John and the class at Bunker Hill this morning, where the students presented him with their recommendations for overhauling the student aid system.

Kudos to Wick for being such an effective teacher.