Picked-off
So go for it—head first
On January 8, 2009, President Tilghman wrote a letter to the “Princeton campus community” in which she estimated that the value of the university’s endowment investments will decline by 25% between July 1, 2008, and June 30, 2009. She proposes a pathetically inadequate response to this catastrophe—namely, a 2.9% increase in tuition, some restraint on new hires, and a limitation on the otherwise monstrous increases in staff and faculty compensation.
It is as if she wandered off the base, got picked off, and now she hesitates, wanting to go back, seeing that she can’t. I, on the other hand, having been a pick-off victim many times, know what to do. I would turn and run like hell for the next base. Go in head first.
The administration and the trustees got three strides too far from the base. First, aggressive management of the endowment, which always was pointless, showed pointedly that it also is dangerous. Second, the excessive compensation paid to Andrew Golden and his assistants was, and apparently continues to be, at best wasteful and at worst destructive (because of the inappropriate incentives it fosters) (see post of July, 2008). Third, the university never could excuse, and now can’t afford, superinflationary spending increases.
So, turn and run, this way. First, close Princo. Second, with all reasonable speed liquidate the entire endowment portfolio and reinvest it in an unmanaged maturity-laddered series of U.S. government debt instruments. Third, eliminate tuition (now more than ever—even those who once could afford it no longer can). Fourth, suspend all capital projects that are not in construction or subject to non-terminable contracts. Fifth, reduce spending to whatever level is necessary to balance annual revenue and expenditures. Sixth, from the endowment spend 100% of all new donations, plus all interest received in the prior year (on the U.S. debt instruments) in excess of an amount of reinvestment necessary to maintain the real-dollar value of the endowment at its current level.
In disregard of all that’s holy, not only in baseball, but also in higher education, i’ve done the math. As with the Yankees, our wonderful university is slow to learn that imprudent spending is not synonymous with excellence. If Princeton were to do these six things it still could spend more per student than any comparable university [fn [1]].
And in case you think I’m dizzy from taking too many on the ear-flap of my helmet, I am, after all, the guy who hit the long ball a year ago. On February 11, 2008, when the Dow Jones Industrial Average was at 12,200 (i.e., nearly 50% (4,000 points) higher than it is today (8,200)) I warned that “Princeton’s current policy of investing (47% of the endowment) in hedge funds, private equities, foreign stocks, and other high-risk securities is pointlessly dangerous.” You can look it up—just click that date on the list of posts to your right. No one has asked me to tip my cap (despite a direct request on my part—see post of October, 2008), but I, unlike our poor lost president, continue to go in head first.
[1] For instance, if the value of the endowment were to decline to $12,000,000,000, and the interest on federal debt instruments were to exceed inflation by only 2.5%, and total revenue from tuition were to be zero, and all other sources of revenue were to remain constant, Princeton could spend, using my formula, $83,600 per student. Brown University spends $8,100 less than that— $75,500 per student.
posted by mcd at 10:22 AM
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