Frequently Asked Questions

Smith is in great financial shape. Why do we need to make changes to our financial plan?
The college is in a stable financial position thanks to many years of strong endowment returns combined with careful expense management and record-setting fundraising results. The college has a strong credit rating and continues to experience high demand as a first-choice school for applicants. At the same time, Smith, like all institutions, is affected by changes in financial markets as well as other external factors. As a result, we are entering a new financial context that will require us to make changes in the way we make budget decisions in the coming years.

The imperative for change is centered around three issues:

• Projections for significantly lower endowment returns in the future
• Growing national pressure on the cost of college
• The need to invest in our strategic plan

How does the recent performance of the U.S. stock market affect Smith’s long-term financial prospects?
U.S. financial markets have recently been trading at record high levels, generating hope that portfolios might rebound quickly. This is good news. If our endowment returns exceed expectations we may be able to adjust our 4.5 percent takeout rate target in the coming years. We will continue to actively monitor our endowment performance in collaboration with the investment and finance committees of the board. It is important to note, however, that our endowment portfolio includes more than U.S. investments and our payout is based on performance across multiple years.

Can’t we just spend more from the endowment to address budget shortfalls?
No. The endowment is meant to last in perpetuity, to ensure that future generations of Smith students receive the same quality of education as the current generation. Spending too much now will hinder the ability to maintain the purchasing power of the endowment in the future. Further, much of the endowment is restricted and can only be spent according to donors’ intended purposes.

How did the college’s endowment perform in fiscal year 2016?
The annual return on Smith’s endowment for FY 2016 was -5.9%. Taking into account new gifts to the endowment and distributions to support operations, this resulted in a decline of $150 million. While the endowment experienced a decline in FY 2016, the average annualized return over the past 10 years was 7.3%. This 10-year return is above the average for our peer institutions. While we do look at the one-year return, we manage the endowment over the longer term. Almost all of Smith’s peer institutions experienced declines in their endowments last year. The median return among endowments of similar size to Smith was -2%.

Above you say Smith's endowment return last year was -5.9 percent. But this table from NACUBO references an -8.7 percent figure. Why the difference?
Our investment return was -5.9% for the year. We also draw about 5% per year from endowed funds to support operations. This is the portion that is expended to support various programs, scholarships, professorships, etc. These reductions in the market value of the endowment are partially offset by new gifts to the endowment, which tend to add between 1% and 2% annually. These three factors contributed to the -8.7% change in market value in FY 2016 noted in the NACUBO table.

Will the 2016 endowment performance cause Smith to change its investment strategy or hire new advisers?
Like most colleges and universities with sizable endowments, Smith invests its endowment in a diversified manner across a variety of asset classes in the U.S. and internationally. Some of these classes performed better than others, which impacted overall performance.

Smith continues to have a strong relationship with Investure, its outsourced investment management firm. The investment committee of the board of trustees closely monitors Investure’s investment activities and performance to ensure the long-term financial success of the college. We invest for the long term.

Will there be layoffs?
We are not anticipating any reductions in the overall size of our workforce at this time. However, we face the same economic uncertainties as other institutions and cannot make promises about decisions and actions we may need to make in the future.

Why are we talking about budget reductions at the same time that we are celebrating the most successful fundraising campaign in women’s college history?
Revenue raised through the campaign over the course of the past seven years is already factored into our budget planning. Moreover, many of the gifts were designated for specific priorities like the academic centers or new academic initiatives. Some $130 million was raised for financial aid.

Should we scale back our library project and dedicate those funds to our operating budget?
No. The library represents Smith’s single largest deferred maintenance need and is being funded primarily from a combination of bond proceeds and gifts. Those resources cannot be reallocated to other purposes.

How will staff and faculty be kept informed about financial matters going forward?
On a regular basis, President McCartney and Vice President for Finance and Administration Mike Howard will meet with students, staff and faculty, in leadership groups and at large. We will review financial information, take questions, and seek your insights toward a sustainable financial model for Smith College.