To the Editor: As a proud graduate of Andover, class of ’60, as a proud parent of two Andover students, and as a generous financial supporter of Andover for many years, I am extremely disturbed and disheartened by the blather that is emanating from the Trustees regarding the large investment losses suffered by the school’s endowment over the past two years. In reviewing comments regarding the $140 million decline in the endowment, we are told by David Underwood, “the plight of PA’s endowment reflects the state of virtually every other endowment in the country.” We are also told that “anyone who had anything toward the end of the 1990’s to do with the equity markets had to begin to think, ‘this can’t last,’” and that “one has to change one’s asset management…but there’s a practical limit to that because you can’t totally restructure a $500 million endowment.” The above statements may only be charitably described as pure poppycock. I happen to be a Trustee and member of the Investment Committee of an East Coast university that has an endowment of approximately $900 million. Our investment return for the fiscal year ended June 30, 2000 was a positive 3.54%. For the 38 largest college and university endowments surveyed by Cambridge Associates, a consulting firm used by Andover, the mean and median investment returns for the fiscal year ended June 30, 2002 were -3.2% and -3.90% respectively, each significantly better than Andover’s return. The lowest return of the 38 institutions was -12.3%, still better than Andover, and the highest return was +10.1%. Yale’s return was +0.7% for fiscal 2002 and +9.2% for fiscal 2001. Harvard’s endowment declined in fiscal 2002 by less than 1%. It is obvious that, if Harvard, Yale and 36 other universities were able to restructure their larger endowments so that by 2002 they were not sitting with 77% of their endowments’ funds in equities, Andover could have done the same with its $500 million endowment. Contrary to what David Underwood has stated, the Andover Trustees Finance Committee could have indeed decided to restructure endowments. It simply decided not to do so. The Investment Committee on which I sit decided to reduce our equity exposure over the past 2-1/2 years from 65% to 35%, hence the good performance. Although David Underwood and our Trustees are people of exemplary character, dedication and good intentions, it is apparent to me that, insofar as endowment fund management is concerned, these qualities are not enough to ensure good results. Andover’s Trustees Finance Committee should be replaced by an Investment Committee that should be comprised primarily of seasoned and successful investment professionals, men and women who have extensive experience in managing and investing money. They should have detailed knowledge of all types of investment firms, their performance records and areas of expertise. Andover’s Investment Committee should not meet quarterly, but rather at least once a month in order to review performance, possibly to reallocate funds among the endowment’s investment categories, to allocate new endowment funds to money managers, to reallocate funds among money managers, and to interview new money managers of all types. Also, because the Andover Board of Trustees is relatively small and is not comprised of very many qualified investment professionals, being a Trustee should not be a prerequisite for being a member of Andover’s Investment Committee. Finally, in view of the disaster that has befallen the endowment, how can either a large benefactor or modest contributor have confidence that future contributions won’t meet the same fate of previous ones? The Trustees of the Academy should begin to rebuild contributor confidence by taking responsibility for the errors and misjudgments they have made. The Trustees should also inform the students, faculty and alumni as to what specifically happened to cause the decline in the endowment, what is the present asset allocation of this endowment, who is managing it, and what steps are being taken to ensure that the irresponsible decisions previously made are not continuing and will not be made in the future. If the Trustees are only prepared to offer lame and disingenuous excuses, then the very future of Andover is in peril. Sincerely, Michael Scharf ’60
