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Maine Private College Endowments Soaring
10/04/2011   Reported By: Josie Huang

After taking a big hit in the stock market turbulence of 2008, the endowments of Maine's top colleges are on a strong upswing. Bowdoin College reports a 22% investment return in the 2011 fiscal year ending June 30th and saw its endowment balloon to $904 million. The Bates College endowment grew to $231 million, largely thanks to an investment return of nearly 20 percent.

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Higher education analysts credit much of the double-digit rate increases to a stock market that up until recent months was on the rebound.

"There are many, many signals that go out from a robust endowment," said William Jarvis. He is managing director of the Commonfund Institute, which estimates that endowments typically account for more than 10% of operating revenue at colleges, money used for everything from financial aid to athletic fields.

"It sends messages to students that this is a good place to go, that there is a lot to do. It sends messages to parents that there might be a chance of getting a scholarship," Jarvis said. "It sends messages to faculty that you'll be treated well, that you'll have money for your research, that you'll be well-paid there."

Colby College's endowment, the second biggest in Maine, after Bowdoin, grew by more than $100 million an to $611 million, an incraese of nearly 22%.

"It comes to just under $13,000 of support for each student that's at the college," said Douglas Terp, treasurer and vice president for administration at Colby College.

He said the college has a roughly 90% equity portfolio and got a tailwind from a strong equity market. Terp said  Colby also received about $29 million in gifts from alumni and foundations. Terp noted that older schools such as Colby, which is turning 200 in 2013, have a fund-raising advantage.

"Obviously, you've had more time to have relationships and have people have positive experiences and have commitment and ties to the institution and want to give back for the opportunity that they received as a result of people who contributed long ago," said Terp.

It's a stark-contrast to 2008-2009, when gift-giving fell, along with investment returns. Higher-ed institutions watched their endowments crumble, with many schools seeing endowments dip by 30%.

This coincided with a spike in unemployment and growth in the number of students seeking financial aid, said Ken Redd, research director at the National Association of College and University Business Officers.

"So you saw a lot of misattribution delaying hiring of faculty and staff or actually reducing faculty budgets and budgets for hiring and those kinds of things in order to fund their financial aid budgets," Redd said. 

The markets have been on an overall upward trajectory since 2009, but, Redd said, colleges are not out of the woods yet. Recent months have seen volatility return to the markets fanned by fears about a troubled economy and the European debt crisis.

But, Redd adds, colleges do have an investment advantage over the rest of us that may allow them to ride out storms and take bigger investment risks.

"Endowments are invested into perpetuity," said Redd. "There's supposed to last forever, so the endowment mangers probably did a little better than you and I did because they could afford to be a little more aggressive, a little more into hedge funds and liquidity assets whereas you and I because our retirements don't last forever, we tend to be a little more conservative."

The bigger the endowment fund, the bigger the potential for investment return. Take Harvard University. It has the country's biggest endowment, which at last count in 2010 was nearly $28 billion. A five percent increase represents hundreds of millions of dollars.

Regardless of what happens with the markets in the next year, higher ed experts said it will take even more time for schools to build their endowments back to what they once were. The Commonfund Institute said the average endowment is just 86% of its value in 2007.

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