Despite years of growth and the successful conclusion of a $208.9 million capital campaign this summer, the Phillips Academy endowment – a source of 39 percent of the $70 million operating budget – has declined $140 million from its peak of $550 million in the spring of 2000. Representative of a nationwide trend amongst educational institutions, such a performance has prompted members of the community to engage in discussions about adjusting the budget without threatening the integrity of the Academy. With 77 percent of its market value as of the fiscal year ending on June 30, 2002 invested in equities, the school’s endowment has decreased with the market but has fared no worse comparatively than those of Harvard, Yale, or Princeton Universities. In fact, according to Chief Financial Officer Neil Cullen, PA’s “mix of investments” since 2000 has averaged a return rate higher than that of a comparable benchmark index. President of the Board of Trustees David Underwood ’54 commented, “The endowment has dropped in value, along with virtually every other endowment in the country, due to the sell-off in the equity markets. Could it have been foreseen? Well, sure, in the sense that a lot of us enjoyed the ten-year bull market, but towards the end of the 1990s, anyone who had anything to do with equity markets had begun to think, ‘This can’t last.’ 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.” Instead, “the amount of money spent on all kinds of things, from paper clips to how many sections of Mathematics we teach,” he said, “are all subject to impact. We will be calling on the faculty to make decisions on how to continue our mission with a little less money… Tough decisions are going to have to be made.” Mr. Underwood said, “We are trying to make sure that the faculty is in the loop as to decisions that will be needed in the future,” as the Trustees have not moved to adopt a new investment strategy but have decided to collect faculty opinion on how to reduce the Academy’s spending “while,” in the words of the Fall 2001 Andover Bulletin and Report of Annual Giving, “reinforcing its key commitments.” For, despite its goals, the Board’s recent financial plan has proved unable to avoid the reality of the 5.5 percent draw from the endowment the campus is bracing itself for or to prevent a reassessment of the school’s expenses. Mr. Cullen explained, “The Trustee finance committee reviews the investment profile and performance quarterly based on the Academy’s investment guidelines. Late last year, the committee increased the portion of alternative assets in the investment portfolio to reduce the risks in down markets. Since that time, the committee has not changed the investment profile of the endowment significantly since it thinks that the diversified mix of investments, with appropriate adjustments periodically, will serve the Academy well over the long term.” Coupled with record-setting giving levels, such a plan benefited the Academy as it maintained its yearly draw from the endowment and enjoyed an economic boom that contributed to the steady rise of the endowments of large universities such as Harvard, which saw its funds reach an all-time high of $19.2 billion in the 2000 fiscal year. In the past fiscal year, however, that university’s endowment declined to $17.5 billion, with investment returns matching up with those at Yale University. Even at Princeton University, where the endowment climbed 2.2 percent from 2001 to 2002, Director of the Princeton Investment Company Andrew Golden noted in an interview with The Daily Princetonian that the college had to make “lemonade out of lemons.” In addition, according to The Princetonian, Provost Amy Gutmann cautioned that unless the University cut back on spending, it could expect annual budget deficits to grow. At the moment, however, there exist no plans for budget changes at that school. On a smaller level, Phillips Exeter Academy (PEA), which relies slightly more than PA on its tuition and fees to support its $56 million operating budget, saw its endowment remain fairly constant by ending the 2002 fiscal year at $531.8 million. Standing in contrast to the Andover endowment’s current $410 million market value, that figure likely reflects the fact that PA devoted $70 million of its investments to the yearly operating of 2000-2002. Mr. Underwood concluded, “The entire community confronts the difficulty of balancing the budget.”
