Endowment Guide

Luther endowment loses millions

Date 10/14/1999 12:00 AM | Topic: News

Editor's Note: This is the first in a series of articles concerning Luther College's endowment.



Between March and August of 1998, Luther College lost approximately $9 million of its then $45 million endowment due to bad investments.

The result of that loss goes far beyond a string of numbers on a financial spreadsheet. Endowment is not just about dollars and cents, it's about Luther students and the education they receive.

"Endowment is the stabilizing force in the college's financial environment," said David J. Roslien, vice president for college advancement. "It gives us the flexibility to fulfill the college's mission."

Luther College revenue - the money that pays the costs of educating, housing, funding, and provides students with all other Luther facilities, programs, and services - comes from two primary sources.

The biggest source, more than 80 percent of the college's revenue, comes from student tuition and fees, according to figures from the college's projected 1999-2000 year budget which the administration presented to the board of regents.

The second source, but less than 20 percent of the total, comes from endowment earnings which are allocated to the budget for the current year.

Luther College's endowment fund is a collection of gifts from donors, funds the college retains and then invests. The college never spends the money held in the endowment principal. Only the earnings from the endowment investments are used to cover the numerous costs not paid by student tuition and fees. The amount a Luther student pays for his or her education is directly connected to the stability of the endowment and how well the endowment is invested and managed.

The quest for endowment stability and good return on investment has been an ongoing struggle for Luther College in the past few years.

"Luther College recognizes that, ultimately, its strength has not been its endowment but its commitment," said H. George Anderson, former president of the college and current bishop of the ELCA, in his 1982 inaugural address at Luther.

Sixteen years later the endowment's size was still an issue, and endowment was still not a strength of the institution.

"If I had to identify the single most important factor at Luther College that stands in the way of fulfilling our vision, or perhaps attaining the kind of national recognition this college deserves, I would say its endowment," said late President Jeffrey Baker in a 1998 interview.

"It's absolutely crucial. Endowment is the key to holding the limits on increases in the comprehensive fee; it is the key to attracting the type of students and faculty we'll need for the future."

Despite efforts of these two presidents to build a bigger endowment, Luther is still constantly struggling to achieve the goals it has set for the endowment fund.











Endowment Progress

As of May 30, 1999, the endowment reached the $45 million mark, but only after spending four fiscal year quarters regaining lost ground after losing some $9 million in the previous year.

That $9 million loss represents more than lost money, it represents lost time.

Time is crucial because college endowments are growing incrementally in the economic boom of the 1990s. The costs of college education are also growing. If the endowment does not grow at a rate proportional to the education costs which its earnings pay, the student's comprehensive fee will need to increase to pay the balance.

According to Roslien, the per-capita of endowment should be a minimum of $20,000 per student. With the current size of the student population, Luther's endowment would have to be $50 million to meet that objective. Due in part to the major 1998 loss in the investment market, the college is farther from, not closer to, the $20,000 per student level of endowment principal.

"Losing money is just part of investing," said John Noel, comptroller for the college. "Our investments will continue to grow, we're just behind where we should be."

So, regardless of how much money Luther lost in 1998, the balance between what students pay and endowment was upset, and so far has not been regained.

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Nathan Gerth
Chips Staff Writer

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