2008 Woodie Awards
Fluctuating funds a factor in financial health
By: Andrea Noble
Issue date: 12/8/05 Section: News
If faced with the same enrollment decline and budget shortfalls that befell Webster this year, many universities would have turned to their endowment funds to make up for their losses. However, Webster's endowment, which is currently valued at $40.9 million, is too small an amount to be able to dip into for such expenses.
"If we had an endowment we would have probably used it for the shortfall," said President Richard Meyers. "There is no question we have a low endowment."
Meyers said the university would ideally like to boost the endowment to equal the university's operating budget, which was $134 million in the 2004 fiscal year. Despite the university's recent fund raising campaign, the goal is still a long way off.
A university's endowment is meant to produce returns on its funds through investment. Meyers described the endowment as an insurance policy, so that if the university suddenly needed funds or was presented with an opportunity for growth, it would be able to take action. Typically 5 percent of university's endowment assets are spent every year. Director of Finance, Dave Garafola, said that Webster's Board of Trustees caps the school's endowment spending at a 4.5 percent of a three-year average of the endowment funds.
"The budget reductions are necessary for the long term financial wellness of the university as we could not continue to dip into our savings to balance a budget from year to year," said Garafola in an e-mail interview.
The Ups and Downs
From 1996 to 2004 the endowment nearly doubled, from $24.7 million to the $40.9 it stands at today. The growth is due to both favorable market upturns and the conclusion of Webster's first ever comprehensive fund raising campaign. Ryan Elliot, director of advancement services, said the fund raising for the endowment was the most successful of the initiatives for "The New Tradition Campaign" which ran from 1996 to the end of 2002. Overall $12.8 million was raised for the endowment and scholarship fund.
In addition to record fund raising, Garafola said favorable investments and good market conditions have also recently boosted Webster's endowment. The returns on the endowment for a 12-month period ending in September were a strong 14.8 percent. The average return for universities in a similar asset class as Webster saw returns of only 9.4 percent in the same period.
But while strong market trends can help Webster's funds across the board, the endowment can also be negatively affected by downward market trends. From 2000 to 2001 the endowment dropped by $4 million. Garafola said this was a time period when many universities were experiencing similar drops.
Because Webster has such a small endowment, the university doesn't count on returns to pay for annual operating costs. According to Webster's Sum and Substance, less than 2 percent of the operating costs are made up by endowment returns. Instead, Garafola explained that most of Webster's endowment goes toward student scholarships.
Many universities with larger endowments do count on return funds for their operating budget, but Meyers said that can be a risky move if the market value drops.
Currently Webster invests the bulk of its endowment in a mix of large and small firms and international companies.
Peer institutions
Compared to 38 peer institutions, as selected and analyzed by the National Center for Education Statistics, Webster's endowment funds rank about average. All peer institutions in the St. Louis area have smaller endowments than Webster: Maryville University ($30 million), Lindenwood University ($27 million) and Fontbonne University ($9 million).
However, when the endowment is broken down into value per full time student, Webster is left in the dust by almost all other local universities. Webster's full-time enrollment was 16,976 students in fall 2004, which amounts to $2,410 per full time student. But even Fontbonne, with a much smaller endowment and enrollment has $4,417 per student.
Lindenwood's endowment breaks down into $5,000 per student and Maryville's is $9,700 per student. Universities with larger enrollment, which are not included as peer institutions, have much larger endowment to student ratios. Washington University, with a $4 billion endowment, averages out to $550,000 per student.
Impact of campaign drives
Webster's first-ever comprehensive fund-raising campaign brought in a total of $43 million in revenue. The goal of the campaign, which stretched from 1996 to 2002, was $30 million. Of the total, $13 million was raised for endowment and scholarships.
According to Sum and Substance, in the 2001-2002 academic year, at the tail end of the campaign, Webster's yearly gift income was up by 83 percent against the previous five-year average. In the 2004-2005 academic year however, yearly gift income was down by 43 percent compared to the average for the previous five years.
Elliot said the slump in gifts was typical at the end of a fund raising drive. Since then, no new campaign drive has begun, though the university is in the early planning stages for the next comprehensive campaign drive.
Meyers said the next fund raising campaign will have a goal significantly higher than the $30 million goal of the last campaign. Current studies are underway to judge the feasibility of the next campaign and Meyers expects the Board of Trustees to present a tentative fund raising goal next April.
"If we had an endowment we would have probably used it for the shortfall," said President Richard Meyers. "There is no question we have a low endowment."
Meyers said the university would ideally like to boost the endowment to equal the university's operating budget, which was $134 million in the 2004 fiscal year. Despite the university's recent fund raising campaign, the goal is still a long way off.
A university's endowment is meant to produce returns on its funds through investment. Meyers described the endowment as an insurance policy, so that if the university suddenly needed funds or was presented with an opportunity for growth, it would be able to take action. Typically 5 percent of university's endowment assets are spent every year. Director of Finance, Dave Garafola, said that Webster's Board of Trustees caps the school's endowment spending at a 4.5 percent of a three-year average of the endowment funds.
"The budget reductions are necessary for the long term financial wellness of the university as we could not continue to dip into our savings to balance a budget from year to year," said Garafola in an e-mail interview.
The Ups and Downs
From 1996 to 2004 the endowment nearly doubled, from $24.7 million to the $40.9 it stands at today. The growth is due to both favorable market upturns and the conclusion of Webster's first ever comprehensive fund raising campaign. Ryan Elliot, director of advancement services, said the fund raising for the endowment was the most successful of the initiatives for "The New Tradition Campaign" which ran from 1996 to the end of 2002. Overall $12.8 million was raised for the endowment and scholarship fund.
In addition to record fund raising, Garafola said favorable investments and good market conditions have also recently boosted Webster's endowment. The returns on the endowment for a 12-month period ending in September were a strong 14.8 percent. The average return for universities in a similar asset class as Webster saw returns of only 9.4 percent in the same period.
But while strong market trends can help Webster's funds across the board, the endowment can also be negatively affected by downward market trends. From 2000 to 2001 the endowment dropped by $4 million. Garafola said this was a time period when many universities were experiencing similar drops.
Because Webster has such a small endowment, the university doesn't count on returns to pay for annual operating costs. According to Webster's Sum and Substance, less than 2 percent of the operating costs are made up by endowment returns. Instead, Garafola explained that most of Webster's endowment goes toward student scholarships.
Many universities with larger endowments do count on return funds for their operating budget, but Meyers said that can be a risky move if the market value drops.
Currently Webster invests the bulk of its endowment in a mix of large and small firms and international companies.
Peer institutions
Compared to 38 peer institutions, as selected and analyzed by the National Center for Education Statistics, Webster's endowment funds rank about average. All peer institutions in the St. Louis area have smaller endowments than Webster: Maryville University ($30 million), Lindenwood University ($27 million) and Fontbonne University ($9 million).
However, when the endowment is broken down into value per full time student, Webster is left in the dust by almost all other local universities. Webster's full-time enrollment was 16,976 students in fall 2004, which amounts to $2,410 per full time student. But even Fontbonne, with a much smaller endowment and enrollment has $4,417 per student.
Lindenwood's endowment breaks down into $5,000 per student and Maryville's is $9,700 per student. Universities with larger enrollment, which are not included as peer institutions, have much larger endowment to student ratios. Washington University, with a $4 billion endowment, averages out to $550,000 per student.
Impact of campaign drives
Webster's first-ever comprehensive fund-raising campaign brought in a total of $43 million in revenue. The goal of the campaign, which stretched from 1996 to 2002, was $30 million. Of the total, $13 million was raised for endowment and scholarships.
According to Sum and Substance, in the 2001-2002 academic year, at the tail end of the campaign, Webster's yearly gift income was up by 83 percent against the previous five-year average. In the 2004-2005 academic year however, yearly gift income was down by 43 percent compared to the average for the previous five years.
Elliot said the slump in gifts was typical at the end of a fund raising drive. Since then, no new campaign drive has begun, though the university is in the early planning stages for the next comprehensive campaign drive.
Meyers said the next fund raising campaign will have a goal significantly higher than the $30 million goal of the last campaign. Current studies are underway to judge the feasibility of the next campaign and Meyers expects the Board of Trustees to present a tentative fund raising goal next April.