Colby and the Economy

Colby and its community – current and prospective students, families, faculty, staff and alumni – face many of the same challenges during this period of economic turmoil and financial uncertainty. We will use this page to answer many of the questions being asked about the College’s financial situation and its impact on the Colby community. We welcome your questions and comments: click here.
Information updated on December 18, 2009
Colby College Endowment Report for Fiscal Year 2008-09


The fiscal year ended June 30, 2009, was the most difficult period for capital markets in the last 30 years. The credit crisis led to a high degree of correlation among asset classes, and Colby’s equity-oriented asset allocation suffered in this environment. The Investment Committee of the Board of Trustees was actively engaged in managing both the short-term liquidity challenges of the past year and the longer-term implications for asset allocation that the recent market dislocations have created. We expect this process to be an ongoing challenge for several years.

Endowment Growth

During fiscal 2009 the endowment market value contracted by $147 million to $453 million, a 24.5-percent decrease. Figure 1 shows the endowment growth over the past 10 years. The endowment is approximately 1.6 times what it was at the beginning of fiscal 2000, growing at a compound rate of increase of 4.6 percent during the past 10 years, which exceeds the 2.6-percent inflation rate of that period.
2009 Endowment Report - Figure 1

Figure 2 summarizes the sources of change in market value for the endowment for fiscal 2009 and for the last 10 years. For fiscal 2009, investment losses and the spending allocation account for the decrease in market value. Over the past 10 years, performance has been offset by spending, with gifts and other additions accounting for the increase in value. This highlights the importance of new additions to the endowment, especially in the form of gifts.

Figure 2 - Colby Sources of Endowment Growth

10-Yr Totals
Beginning Market Value 600,248 290,420

Gifts and Matured Annuities 5,673 83,795

Other Additions 1,218 78,451

Investment Performance Net of Fees (130,169) 160,369

Spending (23,387) (154,300)

Other Deductions (593) (5,745)
Ending Market Value
452,990 452,990

Asset Allocation

Figure 3 shows a comparison of the asset allocation of the portfolio at the beginning and end of fiscal 2009.
Figure 3 - Colby Asset Allocation June 30, 2008, and June 30 2009

Fiscal 2008
Fiscal 2009

Domestic Equity 11.8% 9.8% 14.5%

International Equity 19.9% 17.9% 19.0%

Hedge Funds 27.1% 25.9% 28.0%

Real Estate 7.8% 5.7% 7.0%

Private Equity 20.9% 21.1% 19.5%

Hard Assets 4.8% 2.3% 4.0%

Subtotal 92.3% 82.7% 92.0%
Bonds, Cash Equivalents, and Receivables

Domestic Bonds 6.8% 6.9% 7.0%

Cash Equivalents and Receivables 0.9% 10.4% 1.0%

Subtotal 7.7% 17.3% 8.0%

Total 100.0% 100.0% 100.0%

As of June 30, 2009, the portfolio holds an unusually high cash balance and is underweight in marketable equity asset classes. The dramatic fall in market value in the fall of 2008 coupled with a lack of liquidity in the College’s primary working-capital investment forced the College to focus on raising cash to meet spending and partnership commitments. Over the past year the College conducted a detailed review of all external manager relationships and raised needed liquidity through reductions and terminations of relationships. In the fourth quarter of the fiscal year, a group of private equity partnerships were sold to reduce the amount of outstanding partnership commitments to a level more consistent with the lower current market value of the portfolio. While this process cost the portfolio 2 percent in performance for the year, it was necessary to reduce the level of monthly cash draws to support partnership obligations, to control future allocations to nonmarketable asset classes, and to establish a more sustainable level of relationships in these asset classes. The College has addressed its immediate liquidity needs, but asset allocation modeling suggests that controlling the level of allocation to nonmarketable asset classes, while preserving a core set of relationships, is likely to continue to be a challenge for the next four to five years.

Figure 4 shows the changes in June 30 asset allocation over the past 10 years. During that period the College has decreased its bond allocation while adding substantially to the diversification of the equity allocation through a reduction in the allocation to domestic equity and increases in the allocations to international equity, hedge funds, real estate, and hard assets.

Figure 4 - Ten-Year Assett Allocation

Fiscal Year

1999 2004 2009

Domestic Equity 38.1% 25.2% 9.8%

International Equity 11.6% 15.5% 17.9%

Hedge Funds 4.1% 19.6% 25.9%

Real Estate 5.0% 6.5% 5.7%

Private Equity 20.8% 15.7% 21.1%

Hard Assets


Total Equity 79.6% 82.5% 82.7%
Bonds, Cash Equivalents, and Receivables

Domestic Bonds 19.1% 14.2% 6.9%

Cash Equivalents and Receivables 1.3% 3.3% 10.4%

Total Bonds, Cash Equivalents, and Receivables 20.4% 17.5% 17.3%

Total Investments 100.0% 100.0% 100.0%

At June 30, 2009, the portfolio contained commitments to 152 different investment vehicles, representing 89 investment products and 69 investment managers. These numbers have decreased from June 30, 2008, as a result of partnership sales and the overall manager review. Over the next few years the number of investment relationships is expected to contract further as a number of the older partnership relationships come to the end of their contractual lives.


The endowment underperformed its composite benchmark for fiscal 2009 by 5.88 percent (-21.79 percent vs. -15.91 percent). While domestic and international equity indexes lost more than the Colby portfolio (the Russell 3000 Index lost 26.57 percent and the MSCI All-Country World ex U.S. Index lost 30.54 percent), this is still a very disappointing result. The underperformance occurred in the hedge fund and nonmarketable equity components of the portfolio, with approximately 2 percent of underperformance related to the asset sales in venture, buyout, and hard assets.
  • Domestic and international equities outperformed benchmarks by 5.04 percent and 3.18 percent respectively, with the value-oriented managers driving the outperformance.
  • Hedge funds underperformed their benchmark by 3.24 percent (-7.72 percent vs. -4.48 percent). Despite the underperformance relative to benchmark, hedge funds did preserve considerably more value than the public market benchmarks. The focus on liquid strategies and limited debt allowed the portfolio to maintain much of its value and allowed the College to tap it as a source of liquidity during the year.
  • Venture capital and buyout both underperformed their benchmarks. The underperformance was all related to the losses on the sale of partnerships in those asset classes.
  • Real estate underperformed its benchmark by a large margin. The real estate portfolio is levered, while the benchmark is not. In the current environment the presence of leverage increased the losses on the portfolio and explains most of the performance differential.
  • Hard assets also underperformed by a large margin. Much of the underperformance was related to losses in a marketable proxy that was terminated in the fall and the sale of partnership assets.
Figure 5 shows the endowment performance for one-, five-, and 10-year periods compared to the composite benchmark and a standard 70-percent/30-percent portfolio. Colby has underperformed its composite benchmark for the one- and five-year period, but outperformed for the 10-year period. It has underperformed the 70-percent/30-percent standard portfolio during the one-year period, but outperformed it for the five- and 10-year periods. While the nonmarketable asset classes have created liquidity and performance issues during fiscal 2009, they have been the drivers of long-term performance over the five- and 10-year periods.
Figure 5 - Endowment Performance

Colby Colby
Portfolio *
One-Year Return -21.79% -15.91% -16.35%
Five-Year Compound Annual Return 4.50% 5.35% 0.60%
Ten-Year Compound Annual Return 4.58% 2.51% 1.12%
* 70% Russell 3000 Index and 30% Barclays Intermediate Government Bond Index


The goal of a spending formula is to produce a stable flow of revenue for operations while maintaining, at a minimum, the purchasing power of the principal of endowment. Colby’s spending formula defines spending as a percentage of a five-year moving average of June 30 market values with adjustment for additions received in subsequent years. The use of a five-year moving average in the formula has produced a stable flow of revenue for operations with nominal dollar increases in each of the past 10 years, despite two bear markets in that time span. The smallest year-over-year percentage increase in spending during the past decade was 3.2 percent, and the 10-year compound average rate of increase is 10.9 percent.

Figure 6 shows the comparative 10-year compound average annual growth rates of endowment market value, endowment spending, student charges, and budgeted total operating revenue. The endowment spending has grown at a compound annual rate of 10.9 percent for the past 10 years. This is considerably higher than the rates for student charges (4.8 percent) and budgeted total operating revenue (6.0 percent). In addition, the budgeted endowment income as a percentage of budgeted total operating revenue increased from 11.2 percent to 16.7 percent during the past 10 years.

Figure 6 - Comparative Compound Annual Growth Rates

Ten-Year CAGR
Endowment Market Value 4.6%
Endowment Spending 10.9%
Budgeted Total Operating Revenue 6.0%
Student Charges 4.8%

The spending rate for fiscal 2009 was 4.42 percent.

Organization and Process

The endowment investment program is the responsibility of the Investment Committee of the Board of Trustees. The Investment Committee comprises 11 trustees plus the president and chair of the Board of Trustees on an ex officio basis. Members of the Investment Committee have deep experience in a broad array of asset classes. The portfolio is divided into five components (cash, marketable securities, private equity, real estate, and hedge funds), with a subcommittee for each component that is composed of Investment Committee members with expertise in the relevant asset classes. Working with the investment staff, these subcommittees have the authority to add and terminate managers and to rebalance investments within the asset classes under their purview.

As a matter of process, all changes to the investment portfolio are approved by either the Investment Committee or one of its five subcommittees, with subcommittee actions ratified at the next regularly scheduled Investment Committee meeting. All endowment assets are managed by outside investment managers.

The Investment Committee and its subcommittees are supported by the Investment Office, which includes three full-time positions. The non-investment-manager operating expenses assigned to the endowment (salaries, travel, office expenses, legal review of partnerships, consulting, custody, UBTI taxes on partnerships, and audit) are monitored by the College’s vice president for administration and treasurer along with all other College budgets. These expenses amounted to approximately 13.4 basis points on average market value for fiscal year 2009.

The investment staff conducts ongoing diligence on existing investment managers as well as potential new managers. Changes are recommended to the Investment Committee or one of its five subcommittees. Investment manager diligence focuses on the following key areas:

  • Clear and consistent investment strategy;
  • Depth and continuity of the investment professionals;
  • Risk management at both the portfolio and operational levels;
  • Demonstrated investment performance relative to a predetermined benchmark;
  • A level of assets under management that is adequate to support the organization and appropriate to the investment strategy.

Agenda for 2009-10

The actions taken during fiscal 2009 have dealt with the immediate liquidity issues and have left the endowment with a stronger and more streamlined group of investment managers. During fiscal year 2010 the Investment Committee will conduct a review of the asset allocation targets for the portfolio in light of current investment opportunities and an increased focus on liquidity. It will also decide on the appropriate level of cash reserves needed to manage the portfolio through a difficult transition period, during which the College expects to have negative cash flows for the endowment for the next two to three years as spending and net partnership draws are expected to exceed gifts and transfers into the endowment.


Douglas E. Reinhardt ’71
Chief Investment Officer

Douglas C. Terp ’84
Vice President for Administration

"We remain powerfully and emotionally committed to the financial aid program."

William D. Adams
October 2008
More Information

Letter to Faculty and Staff
President Adams's March 11 letter to faculty and staff regarding the 2009-10 academic year budget

Balancing the Budget, Planning Ahead
Summary of forums for faculty, staff, and students

President Adams on Colby and the Economy
On December 12, President Adams sat down for a Q&A

President Adams's Letter to Students
On December 16, a letter went out to all students' homes

Advice for Seniors: Don't Panic
Roger Woolsey says seniors can still find jobs.

Colby Career Center
Online job bank for students and alumni

Colby Alumni Network
Information and tools for alumni

State of the College Address
President Adams on Colby's finances
State of the College Q&A

Financial Crisis: Views From the Inside
Bob Diamond '73 and Michael Gordon '66

Economics Panel: What is Happening?
Colby professors on events leading to the meltdown