Ask the Experts: Chris Brown on finance
Posted: November 18, 2010
LEWISBURG, Pa. — Chris Brown, Bucknell's chief investment officer and a member of the Class of '81, explains the role of the endowment in the life of the University. || Read more in the newly released 2010 Bucknell University Endowment Report.
Q. What is the endowment?
A. The University endowment is a pool of about 850 individual funds that are invested to benefit Bucknell in perpetuity. Different from annual gifts, which are used to fund current expenditures, endowed gifts help fund today's expenses and help build a better tomorrow for the University.
President Bravman has mentioned the fact that we as individuals are part of only a short window in Bucknell's lengthy history. The same is true for the endowment. Just like the institution, the University endowment preceded us, and it will live on long after we're gone. Endowed gifts made a long time ago are still benefiting current students, and endowed gifts made today will be part of the legacy of Bucknell.
Q. As Bucknell's chief investment officer, what is your role in endowment management?
A. Working with the Committee on Investments of the Board of Trustees, my colleague John Luthi (Class of '04) and I invest Bucknell's endowed funds to maintain intergenerational equity. That means balancing the needs of today's students and being able to serve the needs of tomorrow's students. The University endowment office strives to find the right balance between investing for long-term growth and protecting the fund during turbulent market periods.
Q. How does Bucknell use income from the endowment?
A. Endowed funding enhances every element of the life of the institution. It provides faculty support, academic programming, undergraduate scholarships, faculty and student research funding, library materials, athletics support, and annual budget support for programs throughout Bucknell. If Bucknell had no endowment at all, tuition would be about $8,000 higher per year.
We can't see the endowment, but we feel it and live it in terms of the buildings we pass through, the quality and caliber of the faculty and staff we interact with every day, and the strength of our academic, athletic and student life programs.
Q. How are endowment investment returns allocated?
A. It depends on how they were set up. Some of the 850 funds were created for extremely specific purposes - for example, to support an academic department, a professorship, a merit scholarship or a sports program, whereas other endowment funds are for general operating purposes or need-based financial aid for students. Anyone can contribute to these existing funds and support Bucknell forever in a specific way that is meaningful to them - or they can choose to establish a new designated fund.
The University also has unrestricted endowed funds that can address institutional needs at the discretion of the Board of Trustees. For example, recently Bucknell spent $3.5 million from the endowment to make a meaningful upgrade to campus security. This investment provides a safer and more secure experience for the whole Bucknell community. Both unrestricted and donor-restricted endowed funding are important to the financial health of Bucknell.
Q. How much is the endowment currently worth?
A. The value of the endowment on June 30, at the end of the 2010 fiscal year, was $491 million. We were fortunate to be able to participate in the recent market rally. After two years of negative returns, the fund experienced a total return of 14.7 percent for fiscal year 2010.
In the last three fiscal years, the U.S. equity market declined by more than 25 percent. During the same time period, the Bucknell endowment fund lost only about 8 percent of its value. In these rough economic times, we've managed to protect the endowment fund by diversifying and investing in a very broad array of assets. That's an important principal in any type of investing.
Q. How does the endowment affect current Bucknell operations?
A. Annually, the fund spends at the Board-determined annual rate of 4.5 percent, which is fairly standard. The endowment fund has distributed more than $110 million in the past five years. That's about 15 percent of the annual University budget.
It's important to note that the larger the endowment, the less Bucknell depends on tuition to support our academic mission. Essentially, schools that have larger endowments are less tuition dependent and can afford to offer greater levels of financial assistance to help cover the cost of higher education.
Q. Compared to our peer institutions, where does Bucknell's endowment rank?
A. There is a big disparity between the excellent quality of the institution and educational experience we provide, and the relatively small endowment that supports the institution. If you look at either endowment per student or endowment per faculty member against our peers, we're ranked much lower than our academic standing. As of June 30, 2009, Bucknell's average endowment per student is $122,125. That sounds like a lot, but the average endowment per student at our peer schools for the same time period was $186,660, more than 50 percent higher than ours. This puts Bucknell at a competitive disadvantage.
Q. Can you give an example of the long-term impact of endowed funding?
A. The best example is Ellen Clarke Bertrand's $4 million gift to maintain and support her namesake library. Nearly 50 years later, it's still one of the single-largest bequests in the history of the University. It's Bucknell's largest endowed fund, with a market value of more than $47 million. Every year, it pays out nearly $3 million and keeps the library a vibrant and comprehensive center of learning in ways that Mrs. Bertrand couldn't have dreamed of - think of how much technology has changed since the 1960s. But she did know that she wanted to help future generations of Bucknellians by ensuring that the intellectual center of campus life would remain strong forever. What an extraordinary legacy. That's the beauty and purposeful power of an endowment.
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