Wesleyan is one of the premier liberal arts schools in the country, and its distinctive qualities have great appeal to both students and faculty. With regard to its peer institutions, however, the university’s endowment per student does not measure up.
Wesleyan has learned to use its resources for maximum effect, or, as President Roth often puts it, to punch above our weight. That keeps us fit, but it doesn’t obviate the need to secure Wesleyan’s future with an endowment that better supports our aspirations. Since as recently as 1981 Wesleyan’s endowment was roughly equal to those of peer institutions, the question often comes up: what happened?
In the 20-year period beginning in 1978, Wesleyan’s return on the endowment was solid—only slightly below the group mean of some of the highest performers among our peer institutions. Our draw on endowment, however, was often greater than theirs, sometimes significantly. While spending has been a factor in our relatively weak endowment growth, the largest factor has been inadequate gifts to the endowment and therefore less compounding of endowment value.
During 1984-2004, Wesleyan raised $105 million in gifts to the endowment. The more successful peer institutions raised roughly three times that amount. Strong equity markets compounded the disparity to such a degree that by 2005 seven liberal arts colleges—Williams, Grinnell, Wellesley, Pomona, Swarthmore, Amherst, and Smith—had endowments topping $1 billion. Wesleyan’s was approximately $565 million.
Wesleyan’s last campaign, which raised $281 million, demonstrated the ability and desire of Wesleyan alumni and parents to support the institution. That campaign raised $75 million in direct contributions to the endowment; the rest went to annual operating support, including current-use gifts for financial aid, and other projects.
During the past decade, Wesleyan also took advantage of low interest rates to help finance its program of campus renewal. By 2005 Wesleyan had borrowed $200 million for campus enhancements. We have much to show for it, and many of our facilities are great competitive assets. Our fundraising has been strong, regularly exceeding $30 million per year in cash raised, thanks to the generosity of our alumni, parents and friends. We have, however, directed too much of our gift income to current operations at the expense of endowment growth.
We are changing our practices to put our economic house in order. To that end, we have set a goal of directing no more than 25 percent of gift income toward operating expenses. This is a significant change—past practice was more or less 25% endowment and 75% operations. Our new goal aligns us much more closely with our peers. It’s clear that if we expect to remain competitive with the nation’s premier institutions over the long run, we must do a better job of growing the endowment, and we have begun to do so.
Sound fiscal management has been essential for reducing the draw on the endowment. We now operate in the 4.5%-5.5% range approved by the Board. We have reduced staff positions by about 10% (primarily through attrition and a voluntary separation program), and we are implementing many other changes that will reduce our base budget by $25 million without detracting from our core educational mission. We will not add to Wesleyan’s debt, but we are taking steps to fix the rates we pay. We are committed to maintaining fiscal discipline and limiting our endowment draw.
We have done a lot to reduce expenses, and we will continue to search for efficiencies in operations that enable us to cut spending in ways that do not have an effect on the experience of our students.
Guided by the advice and oversight of the Portfolio Subcommittee of the Board, we are currently speaking to various individuals and firms about the management of our portfolio. Later this spring, we will report to you on the outcome of those discussions.
Endowment is the means by which investors in Wesleyan have a lasting impact on the success of the institution. Through gifts to the endowment, fiscal discipline, and prudent management, we will ensure that Wesleyan continues to offer a liberal arts education second to none.