The meaning of intergenerational equality: The impressive resilience, growth and impact of Swarthmore’s endowment

To the editor,

As an alum and an independent school finance officer, I read with great interest Peter Collings’ two op-ed pieces and Suzanne Welsh’s response on Swarthmore’s endowment spending. They have raised interesting questions about the meaning of intergenerational “equity,” but they have not hit the nail squarely on its head.

Intergenerational equity is achieved when the “impact” of the endowment is maintained over many 25-year generations and is also poised to do so “in perpetuity.”  So, the measure of intergenerational equity we should look for is the percentage of overall expenses and investments that are supported by endowment funding over a longer timeline than one 25-year generation.

So, the proper questions are: (1) How has the role/impact of the endowment changed over the last 50 or 100 years; (2) how has this changing role/impact correlated with increasing quality; and (3) how does the school visualize the endowment’s role/impact to change over the next generation of college growth?

I totally respect Peter’s interest in insisting that the endowment take adequate care of current needs — that is, the “equity” interest of today’s students and professors.  Peter has correctly noted that Swarthmore is fairly conservative in average “actual” spending rate and also that other quality schools often spend as much as 1 percent more.

Peter’s comparing average rates of gain to average spending rates does show a strong Board commitment to growing the endowment, but it does not prove that intergenerational equity has been ill served. In particular, Peter states, “… the dashed line on the graph shows the average endowment return minus inflation… Perfect intergenerational equity would place this line on top of the spending rate data…” This statement is wrong. It would only be true if the College was in stasis and merely worried about simple inflation.  In fact, the College has created, maintained and enhanced its excellence over multiple generations only through innovation, adaptation and growth.  To meet these constant and ever growing challenges, the endowment has had to reinvest its gains as well as spend them.

As Peter continues with his comparative logic he implicitly assumes that there is greater intergenerational wisdom built into Swarthmore’s initial “policy targets” and into the other colleges current spending practices than there is in the results of our Board of Managers’ year-to-year judgements. Then through substitution, Peter has concluded that the college’s actual practices must be “inequitable” because the others are supposedly “equitable” on an multi-generational scale. This implication is made without adequate supporting proof.

Therefore, Peter’s belief that Swarthmore’s Future is being favored over its Today remains a complaint in search of an argument.  I suspect that what may be taken in the moment as cold-hearted penny-pinching by the Board is truly cold-eyed anticipation of the future.  I wouldn’t call it simply “Prudent,” either. As Blake says, “Prudence is a rich, ugly old maid courted by Incapacity” and Swarthmore’s investment managers have clearly demonstrated an extremely steady capacity.

Ironically, most discussions of intergenerational equity focus on spending too much on current needs, not too little!  Indeed, at an Endowment Institute I attended that was sponsored by the Commonfund (a non-profit management company for college endowments), it was amply demonstrated that spending rates above 4 or 4.5 percent could not be sustained over the long run without the accumulation of new capital (new gifts).  In other words, many colleges may be spending themselves into corners that will restrict future quality and choice.  I do not think the Board of Managers can be faulted for not joining what may be a run of lemmings to the sea.

Suzanne Welsh gave convincing support for Swarthmore’s slightly tight-fisted spending policy including (1) the consistently higher rate of inflation in higher ed, (2) Swarthmore’s historic challenges in raising new endowment funds, and (3) the reluctance of new donors to give new money to solve old problems.  All of these arguments support a lower spending rate, and that lower spending rate definitely facilitates more growth for the future.

Perhaps, Suzanne can show us the history that led our Board’s investment genies to follow their lower-than-average spending rate.  She can also show us projections that demonstrate how a higher spending rate could lead to shrinking endowment impact on future budgets. Perhaps, Suzanne needs to demonstrate that protecting the endowment’s mission “in perpetuity” is indeed, a heavy task.

From my perspective, Swarthmore’s endowment is performing Herculean work in supporting endowed professorships (I’m told a greater proportion of Swarthmore’s faculty than at most colleges), substantial employee benefits (my school has bought excellent health insurance alongside Swarthmore for years) and generous financial aid for students.  The endowment’s resilience and growth have been impressive over many years; the endowment’s impact over many years has been powerful.

That Swarthmore’s “conservative” spending rate can do all this AND still build for the future is to be admired.  Most of academia would love to pinch its little toes into those pretty, if-somewhat-tight, shoes!

Bob Mueller ‘68
Chief Financial Officer
Delaware Valley Friends School

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