Academic Entrepreneurship at Dickinson College

June 2, 2006 | Read Time: 9 minutes

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If Dickinson College were a corporation, Wall Street would view it as a classic turnaround story. Less than a decade ago, the liberal-arts institution was struggling. Applications were down. Enrollment was declining. Net tuition revenue — the amount a college is able to keep after subtracting money spent on financial aid — was plummeting, as was the college’s bond rating.

To make matters worse, Dickinson’s endowment was dribbling away. “We were spending 6 percent of the endowment on running the college, and that was not sustainable,” says Annette S. Parker, the college’s vice president and treasurer. Yet the college was doing relatively little to build the endowment, which was a modest $150-million.

Dickinson was not in danger of going under. But if these trends were not reversed, the venerable institution, founded in 1783 by Benjamin Rush, a signer of the Declaration of Independence, was heading for a major crisis.

Flash forward to this year, and the picture is vastly different. Applications are at a record high, topping 5,000 for the first time. Enrollment is up by more than 350 students and now exceeds 2,260. Net tuition revenue is rising, and the discount rate — the proportion of tuition revenue the college gives back to students in the form of grants — has plummeted from 52 percent to 34 percent. Some of the grants were merit awards designed to lure certain students to the college and were not necessarily based on need.

For Dickinson the future now looks promising, thanks in large part to the college’s rapidly growing endowment. It rose by almost 30 percent from fiscal 2004 to 2005, placing Dickinson 16th in rate of growth among 746 institutions, according to a survey by the National Association of College and University Business Officers, done in conjunction with the pension funds TIAA-CREF. The survey puts Dickinson’s endowment at $206-million, a figure that excludes pledges and deferred gifts. The college calculates that its endowment at the end of June 2005 was almost $251-million and now stands at $283-million.

A substantial increase in alumni contributions has played a major role in the endowment’s growth. Equally important has been the college’s impressive return on its investments. For the past two years, Dickinson has significantly outperformed its peers. In fiscal 2005, its return on invested endowment funds was 12.6 percent, compared to a national average of 9.3 percent, according to the Nacubo study. The previous year, its return was 19.3 percent, topping the national average of 15.1 percent.

As a result of the turnaround, Standard & Poor’s has upgraded Dickinson’s bond rating by two notches to A, the highest rating in the college’s history. “It is difficult for an institution of higher education to accomplish the kind of financial progress Dickinson has made,” says Mary Peloquin-Dodd, a credit analyst at Standard & Poor’s. “That type of improvement is not common.”

The changes at Dickinson were set in motion in 1999 with the arrival of a new president, William G. Durden, a Dickinson alumnus. Mr. Durden, who holds a doctorate in Germanic languages and literature, brought a blend of academic and business experience to the post. For 16 years, he was an administrator at the Johns Hopkins University. He left there to head the online higher-education business of Sylvan Learning Systems Inc., now called Laureate Education Inc.

Mr. Durden, who describes himself as “an academic entrepreneur,” was reluctant to take the Dickinson presidency. As a member of a college advisory board at Dickinson, he kept hearing that the college was never in better shape, but that assertion was not supported by data. “There was no transparency,” he says.

When he arrived, Mr. Durden brought a jolt of energy to a community anxious to move Dickinson out of its doldrums. “The faculty were ready to shift from the status quo to change,” says Provost Neil B. Weissman, who has been at the college for three decades. A strategic plan that had been languishing in a college committee for several years was completed in one semester. “We needed a catalyst, and that was Bill,” says Mr. Weissman.

The president lured away Hopkins’s dean of enrollment, Robert J. Massa, to overhaul a floundering admissions operation. Mr. Massa concluded that the college could not afford to adhere to a need-blind admissions policy. Like many colleges, Dickinson began taking ability to pay into account when admitting students from the bottom quarter of its admissible pool. Mr. Massa also put a cap on merit-aid awards — which are given without regard to student need — and reduced the number of such grants. Dickinson now spends only 8 percent of financial-aid money on aid that is not based on need, down from 25 percent. As a result of these steps, the college is able to retain more of its tuition revenue.

Mr. Massa beefed up the admissions staff and launched vigorous recruiting efforts in major urban areas outside the Northeast. He also began recruiting students from abroad, in keeping with Dickinson’s focus on global education. His original goal was to enroll 30 percent of the freshman class from outside the Northeast by 2010. He expects to reach that goal with this fall’s entering class.

At the same time, Mr. Durden aggressively reached out to alumni to build up the college’s coffers. When he arrived, 38 percent of alumni were donors. That number has climbed to 42 percent, and the goal is 46 percent by 2010.

Between the 2002 and 2005 fiscal years, donations to the college’s endowment soared from $3.8-million to $30.8-million. The increase resulted from focused and aggressive fund raising. Before 2000 the development office spent little time cultivating potential donors. Mr. Durden, who as an alumnus was never approached for a gift, says that fund raising used to focus disproportionately on graduates living inside the Washington Beltway.

“That’s not where the money is,” he says. “You have to have a presence in New York, Los Angeles, and London.” Dickinson has alumni — some of them quite affluent — in all these cities.

“For years we were somehow hesitant to ask for money,” Ms. Parker says. In 2000 the development staff visited only about 30 potential donors. Last year that number soared to almost 1,000. The office has since increased staffing from 24 to 37 employees, and its budget has nearly doubled, to $2.4-million.

Since 2000 the college has obtained 21 gift commitments of over $1-million. Between 1970 and 2000, it had only six such commitments. Dickinson has achieved these results without heavily using fund-raising consultants. The college’s leaders trusted their own instincts in devising a plan, Ms. Parker says. “We’ve helped people learn how to give and to find incredible fulfillment in being part of something much bigger than themselves,” she says.

The college is currently in the “silent phase” of a fund-raising campaign, quietly raising money before formally announcing the campaign in the fall. The goal is expected to be about $140-million, more than three times the amount of Dickinson’s previous campaign.

Dickinson has also transformed its approach to investing. In 1999 Marc I. Stern, a 1965 graduate who is vice chairman of the TCW Group Inc., a Los Angeles investment firm with $125-billion under management, agreed to become chairman of the Dickinson board’s investment committee. At the time, the committee was a large group composed primarily of noninvestment professionals, and it operated very informally.

“Somebody on the committee would know of a money manager, and the manager would be given money to invest without a sense of what the asset allocation should be or what the manager’s investment style was,” Mr. Stern says. He wanted a smaller committee composed primarily of alumni who, like him, were investment professionals. Today the reorganized committee has six members, all of them Dickinson graduates with investment backgrounds.

The committee began to take a more diversified approach to investing and explored putting significant sums into areas such as hedge funds and distressed debt. If the committee decided to explore a potential investment area in which it lacked expertise, it reached out to alumni who were not committee members. “We were surprised to find there were alumni in their late 20s or early 30s in each investment area,” says Mr. Stern. “They may not have been at the top of the heap, but they were at the top of their game.” With the help of these alumni, the committee identified and hired leading investment managers.

The shift in approach accounts for Dickinson’s much-improved investment results. In 2000 the college’s endowment portfolio was distributed among only eight managers, who invested primarily in traditional equities and bonds. Returns were mediocre. By this spring, the number of managers had climbed to 28, and 41 percent of the endowment — $103.4-million — was invested in nontraditional assets of all kinds. “When it comes to positioning our investments, we now look more like a large endowment,” says Ms. Parker. “We have started playing a different game. We made two investments in distressed debt that earned 43 percent in one year.”

Despite its recent success, Dickinson is not satisfied with the status quo. It has decided to turn over its endowment portfolio to a professional manager who works only with nonprofit groups. In early May, Dickinson hired Alice W. Handy and her asset-management company, Investure, based in Charlottesville, Va. Ms. Handy, who earned a reputation as an investment guru while managing the University of Virginia’s endowment, started her firm two years ago. Her clients are colleges and foundations, and she has kept the firm small. She currently has six clients, including Middlebury and Smith Colleges.

Thomas L. Kalaris, the current chairman of Dickinson’s investment committee and a 1976 graduate, says that as the college’s endowment has grown and its investments have become more diverse and complex, it has needed a level of attention that the investment committee could not provide. Mr. Kalaris, who is CEO for wealth management at Barclays Capital Inc. in London, says Dickinson faced a choice: Construct its own in-house investment office or farm the job out.

“By hiring Investure, we feel we are getting an investment office with an infrastructure and a set of people who understand what Dickinson wants,” he says. The investment committee will still exercise oversight, but will no longer have to manage the endowment on an almost daily basis, he says.

The decision is consistent with the philosophy of Dickinson’s president. “The key to a successful organization is maintaining a constant sense of urgency,” Mr. Durden says. It’s a way of doing business that may not suit all colleges and universities, but it suits Dickinson just fine.

DICKINSON COLLEGE’S ENDOWMENT: ANNUAL INVESTMENT RETURNS