"Charged with Promise"? Not yet…

[Charger Fan]

I am an alumnus, and I’ve just now finished reading Mr. Hibbett’s excellent letter. Thank you Mr. Hibbet and parents!

I will always be a Chargers Fan, and look forward to contributing to the “Charged with Promise campaign.”

But I will not give a penny until the Board shows that it will take a serious look at the Academy’s leadership and financial management. The Board must show me that it is willing to do its job first, before I contribute.

A grateful alum, Class of ’02

[Samson123]

Charger Fan, I agree. What bothers me most is the thought that our contribution that is supposed to go to the endowment will just be spent. Isn’t an endowment supposed to be permanent? I want my donation to last. I want to imagine future students benefiting from my gift.

But the way the board is overspending, it will be gone in a flash. That’s just not right.

[Jane Doe]

Samson 123…

If you want students to be benefiting from your gift, wouldn’t that entail that Academy is spending the money on something to make their education more worthwhile? Or to help them attend Academy? So unfortunately because of basic logic, your donation will not last because it will be spent on educational purposes to help children learn. That’s how it works. It will “just be spent” but it will be spent on the students that attend Academy.

[Theo]

Jane Doe,

An appropriately invested endowment will grow with time, not diminish.

Growth can continue to occur as long as spendings are appropriately calculated and budgeted.

In other words, you are correct that spending is the “basic logic.” However I think Samson123 is trying to say that spending in EXCESS is the problem here, and also inappropriate investment, both of which those managing the AA endowment are very guilty.

(I am not an economist by any means, but I have a basic understanding of investment. If I’m wrong, please correct me)

[Samson123]

Hi Jane Doe,

Thanks for your response. It’s fun being in touch with you via this blog!

Yes, Theo has got it right. Of course the endowment should be spent. But what should be spent is the income from the investments. The principal has to be protected over time, so that the endowment’s value doesn’t erode away from inflation or overspending.

Mr. Hibbett’s data show a terrible level of overspending, with the resulting scary depletion of the endowment.

Thanks for pointing this out!

[Sam]

Endowment management shouldn’t be all that difficult. Just read the book. Quite simple, yet good enough for Yale.

[BeenThere]

Thank you, Sam, and others who offer up your contributions to the cause:

David Swensen offers up good advice, and is well known in the endowment management community. In managing Yale’s endowment, he became famous for solid returns over time. He also freely admits that his scheme is best employed at endowments of $1B and above. In the nineties, sadly, he had some adherents at the Academy. Once again, hubris and parochialism ruled.

[Sam]

Swenson’s Approach can be used for portfolios of all sizes. Thus his related book for individual investors.

[Avalon]

Good point, Sam. Yes, his book fits all portfolios.
But he heavily stresses the importance of avoiding risk in smaller portfolios.
He would advise against a concentrated bet on real estate, as was the case with the Academy. Much better to got with a REIT mutual fund: broad diversification, low cost, and liquid all the time.

[Current parent]

The ‘endowment expenses’ that Mr. Hibbett refers to, averaging 3.8% per year, I’m assuming include financial management fees? When there are extremely low cost options like Vanguard, why are we paying someone upwards of $2 million per year when we could be paying a fraction of that?

[proud mom of grad]

Current Parent, that is a REALLY good question. Just looking at this thread, it seems to me that we have a lot of financial talent in our community… what decisions have our investment people made that are worth that much money?

[Avalon]

Thanks, Current Parent. You raise a good question. I know that Vanguard makes a strong case for letting them manage an endowment the size of the Academy’s, with very low fees.

Vanguard is now the second-largest investment manager to endowments and foundations. Have a quick read here – pretty compelling.

Trustees, could we look into this?

[Older parent]

I have read Mr. Hibbett et al’s letter. I have been aware of financial problems at AA over the past decade. I did not know the specifics and if the CEO and CFO salaries are close to accurate, I will suspend all donations to AA until compensation for these two is rectified or they are replaced. I look forward to productive interactions among involved parties and hope they lead to a hopeful future for AA.

[Not Surprised]

I think it would be fun to hear Watson explain how it is the CFO was selected for the position and tonehat extent it involved issues totally unrelated to the position.

[local alum]

Dear Trustees,
Like many others at this website, I refuse to donate until you address the issues in Mr. Hibbett’s letter, and get new leadership for the Academy.
But I also want you to know that I will gladly DOUBLE my gift to the Charged with Promise Campaign after you do.
I say this because I believe many are loyal to the Academy, but not to the trustees’s or to the current administration.

[Author]

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