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Hubris and history

This coming Saturday and the following Monday, April 7th and 9th, Academy’s administration will be hosting two community meetings in Simms Auditorium, billed as “informational sessions” on the history of the school’s endowment. Since finances are going to be the focus, we’d like to add some important information to the mix.

If you’ve been following the Save Albuquerque Academy site, you know that the endowment has suffered enormous losses in the last ten years. Many community members have been raising questions about the quality and qualifications of the Board’s stewardship of our money. Those questions have just taken on an added urgency.

The screenshot below (hat tip to forum poster Retired CPA) is taken from this document, which you should look at when you have the time. This is Albuquerque Academy’s $36,000,000 bond, issued by the Village of Los Ranchos de Albuquerque in 2009-2010. It’s quite dense and very long, but there are a number of alarming items included. Here’s one which immediately stands out.

Take a close look at the asset allocation categories and the first two footnotes above. There are some very interesting things happening here.

  1. The “functional categories” for endowment investments are given in terms of their purpose, rather than their composition.
  2.  The first category, “Wealth Creation,” is for higher-risk investments intended to add to the endowment (which obviously has not worked). Notice two unusual points here: 50% of the endowment is placed in a high-risk area (!), and the chart assumes a long-term return on investment of 14%! Is this responsible?
  3. Read the footnotes – especially (1) and (2) – with care. This is where we can see the arrogance of the Academy’s money managers on full display:

“This category utilizes the Academy’s proven ability to take advantage of its local knowledge, and desire to take direct ownership positions as exemplified by High Desert and Mariposa. While these concentrated investments are not typical of other independent school endowments, the EMC and Treasurer feel that these investments captures the Academy’s ‘edge’…” (emphasis added)

So the issuance of this bond – a loan of $36 million to the school – is predicated on the Academy’s “proven ability” to make money in real estate. And this confidence in a volatile market is not shared by other independent schools.

“… the managers the Academy prefers to employ in this category, invest with ownership-like thinking, and typically do not need to be diversified on a stand-alone basis.” (emphasis added)

The school’s financial management is so sound that, unlike any ordinary investor, we don’t need to diversify; we can put all our eggs in one basket because we know what we’re doing.

We all know how well that worked out.

Retired CPA’s entire post is located in the Forum under “Finances”; the thread is titled “Is it really this bad?” You’ll need to scroll down the page. I strongly recommend taking a look at his / her analysis.

Of course, the real task at hand is to look toward the future and make the necessary changes. The Board and administration have a moral and legal responsibility to do everything in their power to safeguard the endowment and fully fund the school, including financial aid in accordance with the Academy’s mission.

Will they take the initiative and save Albuquerque Academy?

Come to the meetings and add your voice.

 

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