Is it really this bad?

[Horatia]

I’ve spent some time this evening looking over the letter to Mr. Honegger. That graph of the endowment is scary. What can we do to reverse the trend? My husband and I had no idea the Academy was in such bad shape!

[donor]

It is important to understand both how we reached a high endowment level and how the endowment actually performed, including each component, from that high point.

Detail of the changes in the endowment over the years helps explain what went wrong. From the 990 forms, there was a reduction of $40 million (approx) in 2008 related to publicly traded securities ($53 million earnings loss total for the year). There was apparently a $30 million write off of Mariposa in 2009 (or is it $52 million?) and $30 million earnings loss for the year. This is just from a quick review of a couple of years I remember being notable.

So, part of the loss on the endowment could be viewed as a realization that the endowment value was actually overstated, based on “paper gains”, in earlier years.

The optimism from those “glory years” up to 2008 spurred some in the Academy community to see that the dream of admitting ALL the best and brightest might be achieved. Until the massive gains from the investments and land sales/development occurred, there had been no hope of admitting ALL the best and brightest.

I am extremely disappointed that the admissions seem to be skewing more and more to those who can pay vs those who can achieve. This is my gripe.

I have seen many large donations/campaigns fail to change the trajectory toward higher tuition and reduced aid to the potential achievers that need it. This is my gripe.

The Academy continues to achieve remarkable results for the students. I would suggest a thorough assessment is needed to see what the Academy community truly wants and develop a plan that will achieve that.

[Rio Grande]

Thank you, Donor, for a very helpful post.

I would add that the Board applied their spending rule to an endowment value that included speculative land holdings which were hugely inflated in the real estate bubble.

Prudent management would have required the Board to hold those speculative holdings “off book.”

Instead, they spent as if those holdings were part of a solid, conservative, stable endowment core. So when the “mark-to-market” rule was applied and the land holdings were drastically marked down, the effective spending rate soared, thus depleting the endowment.

I am surprised that the Board managed the endowment this way. I had always assumed that their money managers applied the time-tested principles of conservative endowment management.

To be charitable, this was, by any measure, a “highly irregular” practice, for which the Academy is paying the price today.

[tanzimat]

What a great report from KOB last night!

Now please, readers, think carefully this line in the Board’s response:

“The Board disagrees with many of the assertions made in the letter and believes those could have been addressed and clarified had this been brought to the Trustees before sending the correspondence.”

First, and most obvious, why won’t the board STATE what it disagrees with, and offer a correction?

Now, imagine now a private conversation with Mr. Hibbett and the Board, instead of his group going public. What would the Board “clarify” about the endowment’s erosion? Would they “clarify” that they didn’t know about it and thank Mr. Hibbett?

Or would they “clarify” that their interpretation of “a 67% loss” was different from Mr. Hibbett’s?

Or perhaps, more likely, would they “clarify” that Mr. Hibbett’s analysis was unwelcome and that Mr. Hibbett should mind his own business?

No, I am afraid the Board’s laughable response only confirms that they have something very embarrassing to hide.

And that should make anyone who loves the Academy very, very angry.

[Please Help]

For all who are unaware, the Academy used to offer need-blind admissions, and 40% of the student body received aid. Now, need-blind admissions are gone, and only 25% of students receive aid. Class sizes have increased significantly, with classes of up to twenty squeezed into rooms designed for a maximum of fourteen.

The result of shrinking financial aid is obvious–less capable students are admitted because they can pay, and more capable students are turned away because they can’t.

[Not Surprised Too]

Which means teachers are having to teach to not only a larger number of students but to less academically motivated students as well.

Not a great set-up for teachers!

[Uneducated one]

I’ve noticed that the “main” excuse for the depleting endowment, seems to be the poor real estate investment in Rio Rancho. Intelligent, “educated” people are calling this an aggressive move, not typical of endowment responsibilities. I haven’t seen anyone question if any of the board members own the real estate development companies involved in mariposa. Maybe some more detailed research, might reveal why such a poor investment was made, with an endowment.

[Serpico]

Good point, Uneducated One. Have a look at alum McMurphy’s post “Sunlight is the best disinfectant…” at “Board governance.” It’s terrific. The board’s stonewalling over Mr. Hibbet’s letter would make anyone wonder: do the trustees have something to hide???

[tanzimat]

All,

Here is a copy of Serpico’s post over at “Meeting with Trustees, Feb 10.” Well worth reading:

I think everyone should know that according to The Chronicle of Philanthropy, Albuquerque Academy was at the bottom in terms of endowment management, in a 2017 study of 1,600 non-profits.

Find the data at the first bullet in the article. The specific quote is:

At the bottom (of the 1,600 non-profits studied), Albuquerque Academy was among the handful of shrinking endowments; it spent $1 for every 30 cents coming in.

Powerful. The trustees must explain this. They owe it to the community.

[ClassOf19]

I find that hard to believe, but if true, clear cut incompetence is at hand. Things MUST change. Period.

[Retired CPA]

I just did a quick look at some of the information which can be found online, so all figures are approximations and opinions of what I have read, no formal analysis has been done.
Academy made several catastrophic decisions starting around 2000. The first of many was giving High Desert Investment and it subsidiaries approval to develop Mariposa. High desert was a huge success, sort of like selling beachfront property. It was a low risk development. Coming off the heels of this success, these same individuals embarked on an incredibly risky…..think swampland in Florida, development outside of Rio Rancho. It was the high desert for the masses. Highly risky and highly speculative. I remember hearing about this and thinking that’s crazy no one is going to want to live out there. Anyway, they must have sold this swampland development to the board and they they must have approved it. I appears that High Desert Investment Corp, and it’s 2 subsiaries, along with the merry band of fools in charge, lost a massive amount of the endowment. The endowment is at a healthy 248 million in 2006-2007. In 2009-2010 it is around 176 million. One chart I looked at had an eye popping 60% of the endowment now sitting in real estate….
How could this happen? Well for starters let’s name names……Andy Watson was around during this whole time…..the buck or lacktherof stops here. So while overseeing the most fiscally irresponsible use of an endowment I have ever seen, Mr, Watson continues to line his own pockets to the tune of over 400,000 a year!
In 2009 the board appoints one of their own for the second time, Gary Gordon as CFO/treasurer.
What? Wait…..we appoint a trial lawyer to be CFO and manage 100’s of millions of dollars of an endowment. What could possibly go wrong he is after all a Phi Bets Kappa…but wait he has no experience as a CFO, he is not a CPA, and has no investment experience. I guess this means putting a huge portion of ones endowment into risky real
Estate doesn’t raise a red flag. It appears that no fundamentally sound investment practices were undertaken to safeguard the Academies endowment.
Gary Gordon just like Andy Watson continued to line his pockets with a far greater salary than any other comparable CFO’s in education in the area, all while running the school into the ground.
Why were executive administration positions being filled by board members at the Academy who were not qualified to do the job? Gary Gordon was also on the Board of the High Desert Investment Corp. Seems like a conflict to me.
Sadly, it is the ultimate responsibility of the board of trustees to ensure the endowment and school are run using sound accounting and investing practices. Why this did not happen is a puzzle.
Since my granddaughter was accepted to 3 private schools this week and received 50% financial aid from both Bosque and Sandia Prep and nothing from the Academy I decided to dig into why. It didn’t make any sense…..that is until I saw what the Adminstrstion and board had done to the endowment. I was shocked, beyond words….this once fine institution had been brought to its knee by a merry band of fools, and all kids present and future have been harmed by these greedy, arrogant self-serving individuals.
My granddaughter will not go to a school that I cannot guarantee will look anything like the prestigious school of the past….heck it may not even be a viable organization in 10 years. The endowment cannot be replaced. That much wealth squandered by risky real estate ventures and unsound investment practices can never be recouped. My granddaughter and my money will be going to a school who will take their fiduciary responsibilities seriously.
For more information and support for the above information please refer to the Los Ranchos 38 million dollar new issue bond for Albuquerque Academy 2009-2010.

Click to access EA416088-EA324526-EA720335.pdf

[ClassOf19]

Because they are a bunch of arrogant fools who stumbled onto a large checkbook and there is absolutely nothing anyone can do to dislodge them – they have each others back.

Absolutely no respect from the teachers, parents, alumni, but that doesn’t matter as long as they have full access to the bank account – at this point, unfortunately nothing can stop them.

Truly embarrassing.

[savetheacademy]

Retired CPA, thank you so much for your take on this information. I am adding the documentation regarding the Academy’s bond to the “Important Documents” section of Our Principal Concerns.

[Retired CPA]

Your welcome.
The bond issue is a treasure trove of information. I would copy pages 43 to 53 to put on here, because people don’t understand the gravity of the situation.
On page 50 one sees the investment strategy…..I recommend people read the footnote on this. It basically says yes 50 percent in one high risk category of investment is unlike any other private school, but we are so knowledgeable and wise that sound tried and true investment policies don’t apply to us. The hubris is breathtaking.

Shocking financial disclosures include:
Tuition as percentage of total Revenue increased from 44% in 2006 to 72% in 2010.

2006-2010 a startling 35 million dollars was withdrawn from the endowment.
2009 unrealized loss on investments was 56 million dollars
2010 – unrealized loss on investment was 33 million

Per the 2008 audited financial statements the value of the Mariposa real estate was
103,862,000.
On the 2015 990 the Mariposa real estate value is 9,220,000.

During this same we also have the 38 million dollar bond. Please note that almost a million dollars a year will become due on this 4% bond in 5-7 years.

Another source of loss in 2012 was the Mariposa Lawsuit which sued High Desert Investment Corp president Doug Collister, Jack Eichorn, and Gary Gordon, along with the Academy, and a few others I think. I don’t know how much all the legal fees were, but they settled for 5 million dollars. So at least another 5+ million hit. They then appear to have defaulted on another 16 million dollar bond and from what I can tell just walked away from the development.
I suggest looking into this lawsuit for more information on how the AA investment arm operated. It was alleged in the lawsuit that land values had been inflated.

I would suggest independent CPA’s and attorneys to compile a complete report on what exactly happened and what would need to be done if the Academy is to survive. Those parents who have raised these issues should be commended. It takes great courage to address truth to power. Best of luck

[savetheacademy]

Thank you so very much. I am going to write a blog entry to direct readers to your very astute observations.

[Author]

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