UNDERSTANDING REED’S ENDOWMENT
How it works, and why it matters. BY CHRIS LYDGATE ’90
The brilliant professors solving equations on the blackboard. The students deeply engaged in debating Plato’s Republic. The Gothic halls rising up from the mist. None of it would be possible without the mysterious source of energy that pulses through campus much like Iron Man’s arc reactor—yes, we’re talking about Reed’s endowment. That endowment, combined with annual gifts from alumni, parents, and friends—plus tuition revenue—is fundamental to Reed’s operation. It allows Reed to offer financial aid, pay professors’ salaries, invest in student services, heat the classrooms, run the sports center, and bring up the footlights in the theatre. And yet whenever I find myself in conversation about Reed’s finances, I am struck by the misconceptions people often harbor about the endowment, especially what is and is not possible when it comes to spending it. In the Beginning The history of the college’s endowment stretches back to 1904, when Amanda Reed died, bequeathing her fortune to an “institution of learning.” The Reed Institute was funded in 1909 with the sum of about $3 million—worth more than $96 million today.
This fabulous sum allowed the trustees to embark on an ambitious plan for the college, spending generously to construct grand buildings such as the Old Dorm Block and Eliot Hall, hire professors, and recruit a dynamic young president, William Trufant Foster. But the halcyon days did not last long. In the mid-1910s, the economy of the Northwest sank into a deep recession. The value of Reed’s endowment, which was primarily invested in local real estate, dropped by half. Making matters worse, the rental income generated by the properties plunged even farther. Meanwhile, America’s entry into World War I in 1917 further exacerbated the financial squeeze by cutting enrollment. By 1918, Reed’s graduating class had shrunk to a mere 37, and the college was facing an operating deficit of $50,000. President Foster and the trustees appealed to Portland’s wealthy citizens for support, but met with a stony reception—Reed was perceived as a hotbed of pacifists and radicals. The college was in financial crisis. Reed weathered the storm by slashing costs and launching a fundraising drive, which more or less set the pattern for the next 50 years. Whenever lean times struck, the college scraped through by appealing to supporters for cash or—as a last resort—selling
off its dwindling stock of properties. By 1971, the value of the endowment had fallen to $4.4 million, barely the size of the annual budget at that time. This situation was unsustainable. The Forest and the Trees Imagine you own a stand of maple trees. There are two ways to earn money from a maple tree. You can chop it down and sell the timber. Or you can tap it and harvest the sap to make syrup. Chopping a tree down yields a big windfall, but then it’s gone forever. Tapping a tree produces less cash, but you can do it again next year. Moreover, if tapped with care, the tree will keep growing, and produce even more sap the next time around. On a basic level, this is the directive behind an endowment. When donors give to the endowment, they do so with the caveat that the gift won’t be spent down. The money is given to the college to safeguard and grow, creating a dependable source of income for years to come. The trustees have a responsibility (and legal restraints) that limit how much can be spent each year—as well as how much risk they can take in investment decisions. Reed’s current endowment is the result of decades of philanthropy, investment decisions, and discipline. As of June 30, 2021, its value stood at $779 million.
REED COLLEGE HISTORIC IMPACT OF ADDITIONS TO THE ENDOWMENT ADDITIONS AND PERFORMANCE
1974 ENDOWMENT INCREASED BY PERFORMANCE $800 million $700m
2005 Campaign Announcement $600m
$500m
1995 Campaign Announcement $400m
1983 Campaign Announcement $300m $200m
$100m 0 1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2018
2021
Dates are fiscal year end
12 Reed Magazine march 2022
