EXPLAINING THE WILLIAMS ENDOWMENT

We have a substantial endowment because for two centuries donors have made their gifts with the understanding that the College will provide support in perpetuity. Perhaps the greatest financial challenge facing the College is the proper allocation between expenditure from the endowment for current needs and saving for future support. The College and the Board of Trustees have to estimate the rate of return expected by the endowment over the coming years. This estimate, together with judgments about inflation, helps to determine a spending rate that will ensure that the endowment will be able to provide that perpetual support.

Over time, the College projects a total annual return on its assets of nine percent. We budget so that in the long run we protect the purchasing power of the College’s assets. To ensure that the base grows to provide for future spending, every year we need to return 4.5 percent or more to principal. This means Williams can spend, on average, 4.5 percent of the value of the assets each year.

But that is in the long run. In some years returns are higher and in other years returns are lower. When returns are higher, endowment income spending falls below 4.5 percent but when returns are weaker, spending exceeds 4.5 percent. Current spending from endowment is five percent.

The goal is to provide a stable program that maintains current excellence – a program that is not subject to swings in funding (up or down) because of market fluctuations. So we save for rainy days when the market shines, and we spend during stormy markets – always on a steady basis. Despite the claims a few short years ago that capital markets would rise inexorably and therefore the College should spend more of its resources, Williams stuck with its prudent financial plan. When the economy turned down, the wisdom of this conservative approach was proved once more.

What is remarkable about Williams alumni is that their support continued to grow at the same time we experienced several years of large endowment growth. Alumni support, combined with the extraordinary growth in the endowment, has enabled Williams to control tuition costs. In the spring of 2000, the College – alone among its peer institutions – held tuition level for the 2000-01 academic year. Since then, Williams has kept its increases among the lowest of our peers.

Financial aid students have seen their costs continue to drop. Four years ago, Williams financial aid students typically graduated with an average debt of $15,625. Beginning with students in the Class of 2005, those with the greatest need will typically graduate with a debt of only $3,900. These changes involve a significant increase in grant aid and thus a reduction in net price, particularly for lower income families. In fact, U.S. News & World Report ranks Williams as the best bargain in its peer group.

In order to remain one of the top liberal arts colleges, we must continually enhance our program offerings – courses, technology, library acquisitions, internship opportunities, etc. This means having the flexibility to target resources to those emerging areas of interest for faculty and students, and to emerging curricular changes. Unrestricted gifts to the Alumni Fund provide the resources to target and respond to these demands.

Williams alumni have always been forward-looking and have come to expect nothing less than the very best. The College is at an important juncture in its history, perhaps the most important since the 1961-1973 presidency of John Sawyer, when the dissolution of fraternities and the move to coeducation changed the face of Williams forever. The College took the lead then and is at the forefront of higher education now. It is able to consider the bold initiatives that will be undertaken in the coming years because it is confident that alumni will continue to honor the compact among generations and see the broader benefit to society of supporting our extraordinary Williams students.

Okay, but if we didn’t have an Alumni Fund, all we’d need to do is take another $7 or $8 million from the endowment this year, right?

Sure, in one year, it probably wouldn’t matter that much, but it would add up quickly. Take $7 million this year plus the earnings on that $7 million, add the loss of the $7 million that would have come in from the Alumni Fund and, compounded over time, that’s a considerable sum. In five years, we’d be talking approximately $40-$50 million in annual gifts, in ten years it would be more than $120 million coming out of the endowment.

Furthermore, “funds functioning as endowment” – those funds invested with the endowment at trustee direction rather than by donor restriction – amount to only 15 percent of the endowment total. Only these funds could be made available for expenditure at trustee direction; for the 85 percent designated by donors to endowment, the College is obligated to spend at an “avail” rate that preserves the purchasing power of the principal. So, a model which calls for drawing down “funds functioning as endowment” at a rate of $7 million-plus per year would not work for very long, as that resource would be quickly exhausted.

In a comparatively short time, Williams would have to charge more to sustain its current program, or do less. And that’s not even considering doing more in terms of financial aid and technology or implementing any of the curricular innovations that are part of the plans to enhance the Williams academic experience. The cumulative impact of endowment and annual giving on the College over the years has made Williams what it is today, and allows it to envision an even brighter future.