The Colby Echo

Issue date: 9/23/08 Section: Features

Media Credit: cnn.com

Last Monday's crises on Wall Street were the latest in a series of economic catastrophes that have left the nation's faith in the market in shambles. The historic Lehman Brothers investment bank filed for bankruptcy after reporting record losses in the mortgage market, creating a downward spiral of asset-loss that influenced Merrill Lynch, an investment-management group and another pillar of Wall Street, to agree to a buyout by Bank of America. Add record food and oil costs and rising unemployment to the mix, and most Americans are steeling themselves for the next Great Depression. But to what extent does the economic trouble at hand extend to Mayflower Hill?

"The College's day-to-day operations will remain unaffected," Pugh Family Professor of Economics David Findlay said. He added that the College has seen numerous major market fluxes since its founding in 1813, including the Great Depression, and careful financial planning has always brought the school out on top. "A school of this size, with its history and its scale, has learned how to insulate itself from changes in the market, however drastic," he said.

Vice President for Administration and Treasurer Doug Terp agreed, and cautioned the community that "it is still too early to judge the full financial impacts" that the national economic crisis will have on the College. Instead, he said, "we are more concerned about the effect this will have on Colby families."

Terp went on to explain that the College's assets are dispersed among a complicated web of investments, including over 70 investment managers and 150 investment vehicles. Each investment manager allocates funds to different asset-classes, creating an extremely diverse portfolio that is better insulated against drastic changes in the market. "The idea is that by spreading our investments out into many different areas, they will be more protected as a whole from the occasional downfall of any one of them. This in turn creates greater financial stability and more consistent investment returns," he said. By investing in many long-term assets on both the national and international level, including stocks, bonds, hedge funds and venture capitalists, the College is able to secure and maximize its short-term funds, even under enormous economic pressures.

Where the College may be affected in the short-term is in endowment and private-giving. "As the economy tightens, it's harder for people to give as much [money to the College] as they would like," Terp said. But he pointed out that the direct impact of market fluxes tends to lag by a year, trickling down from the foreclosure of major Wall Street firms to the common investor. Consequently, he reiterated that it is still too early for serious concern on the endowment's behalf.

Continued...

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