Private Equity Solutions

Letters to The Editor

Date 11/11/1999 12:00 AM | Topic: Letters to the Editor

To the Editor:



In response to the recent Chips stories, we would like to provide the following personal perspective.

First, it is important that we all recognize that we have not "lost millions." The word losing indicates that one doesn't gain the loses back. In the twelve months ended Sept. 30, 1999, our portfolio earned 24.7 percent, a good return by most standards.

An endowment is a long term investment. Indeed, our investment advisors define endowment as a "perpetual" investment. Why? Because the people who give money for endowments expect endowments to generate annual income forever. That being the case, the investment strategy must be one which matches long-term trends. The strategy must not be driven by short-term market timing or "hot-stock" decisions. Of course, we do fully expect to be "right" more than "wrong." Recognizing that stocks outperform bonds in the long-term and emphasizing endowment growth for the long-term future, we accept a reasonable amount of volatility in the short-term for continuing sustained growth of the endowment portfolio over the long term.

Virtually all the investment experts say that about 90 percent of investment returns are dictated by asset allocation decisions. The Regents review the topic regularly and the current policy is to have 85 percent of our endowment invested in equities and 15 percent in fixed income.

Within the macro level "policy allocation" of 85 percent equities, our endowment is further distributed among a group of sub classes of equities which include U.S. large stocks, U.S. mid stocks, U.S. small stocks, international large stocks, international small stocks, and international emerging market stocks. Diversification is very important. Historical evidence indicates that no single type of asset wins all the time. If your perspective is really long term, you spread your investments so that you smooth the potential roller-coaster effect of placing all your bets on a single type of investment.

Three years ago the Regents engaged the services of an investment consulting firm to evaluate the college's position and formulate a policy. This policy calls for a long-term return of 11.5 percent net of fees. In order to achieve this level of return and the benefit it will bring to Luther, we accepted a standard deviation of 14.2 percent. This means that in seven out of ten years, we expect the portfolio to return between 2.7 percent and +25.7 percent. That is a normal expectation. We would obviously prefer it to be up every year, but there is no free lunch unless you are totally clairvoyant. The 1998/1999 fiscal year's return of 1.3 percent, while not what we desire, is within the standard deviation of expected results. The investment portfolio had $40 million at the end of March 1998 and $37.9 million at the end of May 1999. During this period $2.3 million of the annual earnings were withdrawn from the portfolio to support programs at Luther.

We believe we do have a sound investment strategy. We draw on ongoing professional advice to help us. It's regular topic for the Administrative Investment Committee, the Regent's Finance Committee and the total Board of Regents. We, like you, were disappointed with the Aug. 1998 results. We understand the importance of a growing, healthy endowment. However, the reality is that our diversification strategy - a very common endowment strategy - was implemented at almost the precise time that the international stock markets (Russian, Asian, Brazilian) went into the tank, and we had an equally unprecedented run up in a very few large cap/internet stock. It's very easy to be critical of these positions. However, investing is not a Monday morning quarterback game if you are following a long-term strategy.

Thank you for your interest. This topic is important to all Luther students, not just those of you on campus today, but those who will follow you in the coming decades. We and our colleagues who are charged with endowment responsibilities will do our best to follow a long-term, prudent investment policy.



Neal Nottleson, Chair, Board of Regent's Finance Committee

Diane Tacke, Vice President for Finance and Administration







To the Editor:



I am very concerned about your article "Environmental Concerns sways Decorah election" in the Nov. 4 issue of Chips. It seems the article was written without any concern for finding the truth or for finding facts.

I am amazed that you would use unnamed sources to accuse me of "legally overstepping the bounds of the Citizens for Responsible Development's non-profit status." Not only is this completely untrue, it is a fact that could be easily found.

The fact is the CRD did not spend any money on the city council elections. My involvement is completely and totally separate from the CRD. I have not received any wages from the CRD since well before the announcement of either Pat Running's or Steve Matter's candidacy for city council. This is a fact easily found by contacting the treasurer for the CRD, Amy Webber.

The fact is the CRD, as a 501(c)(4) organization can allocate funding to political campaigns (although they DID NOT). This too is a fact easily found. Call Sandra Townly (214/767-0172) at the IRS, ask her and then print the truth.

Just because "different members of the Decorah community" said something does not make it print-worthy. You have sunk to tabloid trash by printing completely false statements and refusing to find the truth. This is not a matter of me having a different opinion than others; the facts are out there. You should have called the IRS and found the truth about 501(c)(4) non-profits. Writing the article as a "he said - she said" story completely undermines the fact that I am not afraid to be named, and my responses can be verified as empirical truths.

I hope that you will have the decency to find the truth and print it with an apology for the completely false accusations made against me. More importantly, I hope that the next time you accuse someone of illegal behavior that you take seriously your responsibility to find the facts.



Thatcher Vagts ('98)

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