Because there’s a lot of information to digest, we thought we would parse out the content of Gary Gordon’s presentations of April 7 and 9 over a series of blog posts. So here’s the first… watch this space for updates.
Several friends of the Save Albuquerque Academy website attended the seminars, and while the content of both presentations was the same, the audience questions and subsequent conversations were substantially different.
Basically, Mr. Gordon gave an overview of the history of the Academy’s endowment, from the beginnings of the school in 1955 to the present. As you might expect, as time went on, things got more and more complicated, as do Mr. Gordon’s (and Mr. Watson’s) explanations for the decisions made and actions taken on their collective watch.
A little background: Gary Gordon is an attorney and a graduate of Academy (class of 1979). Though he is not a CPA, he does have a lot of experience serving on the boards and finance committees of multiple local organizations. He became a member of the Albuquerque Academy Board of Trustees in 1994 and served a full fifteen-year term, including three years as Board chair. Once he rotated off the Board in 2009, he became the school’s treasurer and has served in that capacity ever since; he’s retiring this summer. Andy Watson has been the Academy’s Head of School since 2001; Gary Gordon actually oversaw his appointment.
Here’s one of the slides Mr. Gordon showed to explain the behavior of the endowment over the last two decades, including the housing crash of 2008-2009:
It’s a bit fuzzy, but the vertical Y axis of this graph is dollar amounts, in $50m increments, from zero to $350m at the top. The horizontal X axis is marked “FYE” (fiscal year ending) in dates from 2000 to 2015, the last entry on the right. The red (upper) line indicates the total market value of Academy’s endowment; the gold (lower) line shows the market value of all of the endowment excluding real estate. The circled high points on each line show the maximum values at the height of the housing bubble in 2007; the red line tops out at nearly $300,000,000 and the gold (non-real-estate assets) tops out just above $150,000,000.
The values of the two lines at the far right-hand side of the graph indicate totals for 2015: the entire endowment was worth $84,774,244, and the non-real-estate assets were worth $75,305,443.
In the middle, of course, was the debacle of the Academy’s investment in the Mariposa development planned for the desert northwest of Rio Rancho. That’s a story in itself, which we’ll explore tomorrow.
In the meantime, take a good long look at this graph. The area between the red and gold lines is based on a single asset: the land at Mariposa, which Academy purchased in 1994 for $4.6 million. That steep climb you see? It’s the result of an appraisal by a third-party firm. This company (whose name was not given by Mr. Gordon) appraised this land and increased its value on the Academy’s books by what looks like about a factor of six. So by 2007, Albuquerque Academy was sitting on an endowment valued at almost $300 million.
We’ll get further into this later. But this graph raises some questions that were not answered during the meeting, which I invite readers to consider and discuss:
- Given that this huge increase is based on the appraisal of a single, illiquid asset, was it wise to begin spending as much as the school did at the time?
- Were multiple companies consulted for appraisal? If not, why not? If so, how was this appraisal chosen?
- How was the appraiser selected?
- The collapse in the real estate market, together with some other bad decisions, explains the drop in the red line. But why did Academy’s non-real-estate investments lose half their value? The US economy has been in a bull market since 2009. Why are our investments still losing value (at least through 2015)?
- Why does the gold line keep going down even after the economic recovery?
Mr. Gordon showed lots of slides of letters from prominent private schools and colleges talking about the decline in their endowments… in 2009, at the bottom of the market. Those endowments have recovered. So:
- Why hasn’t ours? This is completely unexplained.