Sweet Briar College endowment defensive

By Christa Desrets

Published: October 15, 2008

The nation’s financial turmoil is more than a topic of study at Sweet Briar College. It’s also a potential threat to the school’s bottom line.

Sweet Briar College, like other colleges in Central Virginia, has tens of millions of dollars in endowment investments that are key to its overall financial health.

Colleges typically use generated returns from the endowment to fund a percentage of operating expenses such as scholarships, faculty salaries and campus maintenance.

“We’re weathering the storm right now,” said Paul Davies, vice president for finance and administration at Sweet Briar. “We’ve positioned ourselves so that we’re not taking a whole lot of dollars out of the endowment. And like everyone else, we’re hoping that this (market) doesn’t stay for a couple years.”

About six months ago, the college took on a “defensive posture” by moving some of its endowment assets, currently valued at $95.5 million, out of stocks and into bonds that tend to be more secure.

Davies said that diversification of assets is one key to getting through tough times.

“If one side is down, the other side will help you out,” Davies said. “But right now, the European markets are down as well as the U.S., so we’re being hit all at the same time.”

A year ago, the value of the school’s assets stood at $103 million. Davies said that 7.4 percent loss is not realized unless the school pulls out investments while they’re valued lower.

“Like everybody, we’ve lost about 5 percent since June,” he said. “It’s a paper loss, and this is what’s going on with the world right now — the fear is what’s driving a lot of what’s going on.”

Controlling spending during tumultuous times also is important, he said.

“Some of the items we may want to spend money on, we’ll hold off until the spring and see how we are so we can balance our budget.”

Sweet Briar plans this year to spend 6.6 percent of its endowment, which amounts to 16 percent of the school’s $43.5 million operating budget.

Most schools aim to spend less than 5 percent of endowments annually, Davies said, and hope for returns of at least 6 percent.

In the past several years, the college has been working to decrease its rate of endowment spending, he said.

“We have to run a very tight ship in these smaller schools,” he said. “That’s what we’re trying to do, is always grow that endowment.”

Also in Central Virginia, Lynchburg College, Randolph College and Liberty University each have made moves to protect their investments in the past year by adopting more conservative market positions.

Chris Burnley, vice president for finance and administration at Randolph, said that the school in February further diversified its investments, now valued at $155.7 million including funds in trust, to long equities bonds and alternative investments such as in oil, timber, real estate and hedge funds.

In the 12 months ending June 30, the school took a .4 percent return loss on its endowment.

“Most of the volatility has occurred in (September), and we don’t know what the impact of that is yet,” Burnley said.

Lynchburg College’s endowment remained steady at about $84.5 million from June 2007 to June 2008, said Steve Bright, vice president for business and finance.

He acknowledged that the endowment has declined in value since then, but the college focuses on the perpetual nature of the funds and their gradual gains over an extended period of time.

Liberty’s endowment has taken shape in roughly the last year, since the death of school founder Rev. Jerry Falwell Sr., said his son and now Chancellor Jerry Falwell Jr.

“When Dad passed, his life insurance was enough to pay off the (school’s) debt plus about $7 million into endowment,” he said.

Since then, the college has accumulated a roughly $35 million endowment, including investments in donated real estate such as The Plaza.

About three months ago, the school moved its “operating cash, endowments, everything,” Falwell said, into U.S. Treasury Bills with a return rate of between two and three percent.

“At least it’s safe,” he said. “I’m just going to keep it there until things are safe in general.”