question for finance types - USM Forum -- Message Board

Date: May 16, 2005

question for finance types

Date: May 16, 2005

Nothing he says quite adds up!

Patents and pledges in the $100 million number but not in the endowment?

Date: May 16, 2005

quote:
Originally posted by: golf
"How can USM have just completed a $100,000,000 capital campaign, yet have an endowment of just $35,000,000? Please fill us in."

Ask the credit card companies, the consumer credit counselors, and the lawyers who handle bankruptcy. And my wife might be able to answer your question also

.

Date: May 16, 2005

quote:
Originally posted by: golf
"How can USM have just completed a $100,000,000 capital campaign, yet have an endowment of just $35,000,000? Please fill us in."

Assuming that everything is on the up-and-up (and what an assumption that is) the two things do not necessarily have much to do with each other. For example, the $100 million capital fund could well include promises, insurance policies, and other similar "assets" that may or may not ever be received and, if received, will almost certainly be more or less than promised. Additionally, as those assets are received, they could well be spent immediately. I am assuming here that a "capital campaign' will be used for capital improvements, such as new or upgraded infrastructure, buildings, machinery, whatever would qualify as "capital."

By distinction, endowed funds are intended to be permanent. That $35 million is (supposedly) more or less inviolate. The $35 million is invested and only a "limited something" can be spent for specified purposes. I am saying "limited something" because it would be a mistake to say "only the income" as is commonly stated. Most foundation assets would include some bills, bonds, notes, C.D.s, i.e., investments that do indeed generate income. Other foundation assets would include equity investments that do not produce much income, but that would be expected to appreciate in value over time, i.e., stock in small to mid-sized corporations. Typically, foundations use some formula for spending that allows for endowed funds to generate money for scholarships, faculty salaries (i.e., an endowed chair), etc. Managed properly, over time the endowment kicks of money for the purpose for which it was intended, and is able to grow a wee bit to offset the effects of inflation.

Date: May 16, 2005

Kicks off money.

(Why is it easier to see the mistakes after you post?)

Date: May 16, 2005

quote:
Originally posted by: ram
" Assuming that everything is on the up-and-up (and what an assumption that is) the two things do not necessarily have much to do with each other. For example, the $100 million capital fund could well include promises, insurance policies, and other similar "assets" that may or may not ever be received and, if received, will almost certainly be more or less than promised. "

Then the $100 million is just smoke and mirrors.

Date: May 16, 2005

Not necessarily, as I am sure ram will explain. The other important fact here is that most of the 100 mil was raised prior to the Thames ascendency.

Date: May 16, 2005

quote:
Originally posted by: Third Witch
"Not necessarily, as I am sure ram will explain. The other important fact here is that most of the 100 mil was raised prior to the Thames ascendency."

To me at least, when it was raised is irrelevant. It was this statement by ram that suggested to me it is largely smoke and mirrors: "promises, insurance policies, and other similar "assets" that may or may not ever be received." A potential contributor could specify in her will that USM would receive 100 million dollars "if 90% of the moon's population are zebras at the time I die." It is unlikely that the university would ever get a cent of that money. I'd say that for the university include that unreceived 100 million dollars would be smoke and mirrors.

Date: May 16, 2005

quote:
Originally posted by: Firefighter
" A potential contributor could specify in her will that USM would receive 100 million dollars "if 90% of the moon's population are zebras at the time I die."

This reminds me of Neal Armstrong's famous punch line about when man walks on the moon. Something like "And here's to you, Mr. . . . . ."

Date: May 16, 2005

quote:
Originally posted by: Firefighter
" A potential contributor could specify in her will that USM would receive 100 million dollars "if 90% of the moon's population are zebras at the time I die." "

I simply don't know how closely the foundation is looking at the pledges that make up the capital campaign. I would be disappointed if a pledge as speculative as the one you describe was included, but perfectly permissible assets might just as easily be called "smoke and mirrors." I think that phrase is a little too pessimistic, but I understand your skepticism.

I hope (but I don't know) that USM has a lot of capital campaign cash in the bank, but there are many other legitimate ways to give to such a venture.

Foundations frequently solicit donors to give "second to die" insurance policies. A couple in their twenties can buy a policy for a few thousand dollars that has a death benefit of hundreds of thousands, but it will not pay off until the death of the second of the two insureds. That could easily be sixty or seventy years from now. If inflation is factored in, the purchasing power of the long-delayed policy proceeds could be little more than the amount paid in premium today. But foundations -- at least all three or four that are familiar to me -- report the eventual death benefit when they are tooting their own horns and the horns of their donors. C'mon. They are in the advocacy business, not the objective reporting business. Everybody loves a winner. They give to a winner. If Dr. and Mrs. Mxyzptlk buy a $500,000 policy for $20,000, which number looks better to Joe Sixpack? Doc and the Missus usually enjoy the attention of being called major donors, at least until other charities start hitting on them for $500,000 contributions.

More speculative than insurance is the simple pledge. I know of people who have promised to give to capital campaigns, but just decided not to. They may have started with the best of intentions, but then changed their minds. They may have encountered other needs that trumped their charitable pledges. They may have had suffered a stroke, an accident, or some other disability and been placed under a court supervised conservatorship. The conservator would be obligated to take care of the ward, not meet the ward's previous pledges to charity.

Charities almost never push very hard for those pledges, anyway. Sue a donor that has reneged, and watch all the potential donors run away. It's been a long time since law school, but I don't think such pledges are always (or even ever) legally enforceable.

One thing is pretty near certain: there is not $100,000,000 on deposit today in some account styled "USM Capital Campaign Account."

Date: May 16, 2005

Which of the following gets the biggest reward at USM, pledging a policy or reneging on a pledge?

Date: May 16, 2005

quote:
Originally posted by: ram
" I simply don't know how closely the foundation is looking at the pledges that make up the capital campaign. I would be disappointed if a pledge as speculative as the one you describe was included, but perfectly permissible assets might just as easily be called "smoke and mirrors." I think that phrase is a little too pessimistic, but I understand your skepticism. I hope (but I don't know) that USM has a lot of capital campaign cash in the bank, but there are many other legitimate ways to give to such a venture. Foundations frequently solicit donors to give "second to die" insurance policies. A couple in their twenties can buy a policy for a few thousand dollars that has a death benefit of hundreds of thousands, but it will not pay off until the death of the second of the two insureds. That could easily be sixty or seventy years from now. If inflation is factored in, the purchasing power of the long-delayed policy proceeds could be little more than the amount paid in premium today. But foundations -- at least all three or four that are familiar to me -- report the eventual death benefit when they are tooting their own horns and the horns of their donors. C'mon. They are in the advocacy business, not the objective reporting business. Everybody loves a winner. They give to a winner. If Dr. and Mrs. Mxyzptlk buy a $500,000 policy for $20,000, which number looks better to Joe Sixpack? Doc and the Missus usually enjoy the attention of being called major donors, at least until other charities start hitting on them for $500,000 contributions. More speculative than insurance is the simple pledge. I know of people who have promised to give to capital campaigns, but just decided not to. They may have started with the best of intentions, but then changed their minds. They may have encountered other needs that trumped their charitable pledges. They may have had suffered a stroke, an accident, or some other disability and been placed under a court supervised conservatorship. The conservator would be obligated to take care of the ward, not meet the ward's previous pledges to charity. Charities almost never push very hard for those pledges, anyway. Sue a donor that has reneged, and watch all the potential donors run away. It's been a long time since law school, but I don't think such pledges are always (or even ever) legally enforceable. One thing is pretty near certain: there is not $100,000,000 on deposit today in some account styled "USM Capital Campaign Account.""

ram, former SGA prez Blake Hamm (prez before Loftus) donated a single-premium life insurance policy with a $50K benefit to USM about 2/3 years ago. After his "donation" he was invited to several black tie affairs for "large" donors.

Date: May 16, 2005

quote:
Originally posted by: ram
" I would be disappointed if a pledge as speculative as the one you describe was included"

ram, the zebras on the moon example I gave was an extreme (and unrealistic) case. But how about a $100,000 life insurance policy where the university is the beneficiary but not the owner of the policy? That is a common occurrance. The purchaser (e.g., owner) of the policy could change the beneficiary anytime. Even small amounts left in a revocable will are not certain sources of future income for the university. I did not mean that you are smoke and mirrors. I meant only that any university that reports such unrealized assets is conducing a smoke and mirrors magic show.

Date: May 16, 2005

I don't see anything unusual in the USM fund drive. All universities accept deferred gifts (who wouldn't?). MSU is in the middle of a $400M drive and the $200M+ they have raised so far include numerous deferred gifts. My only comment is that it is better to be completely transparent about the type of gift received. As an example see MSU's breakdown

Date: May 16, 2005

quote:
Originally posted by: palindrome
"I don't see anything unusual in the USM fund drive. All universities accept deferred gifts (who wouldn't?)."

palindrome, alll universities do and should accept deferred gifts. No problem with that as long as there is "truth in packaging" when those figures are used as a magnet to attract even more funds prospective contributors. from But there is a difference between a bird in the hand and a bird in the bush. Although it may not be required legally, USM should report both. Otherwise, it is only smoke and mirrors.

Date: May 16, 2005

More than likely, going parking with a pledge.

Date: May 16, 2005

quote:
Originally posted by: Firefighter
"But how about a $100,000 life insurance policy where the university is the beneficiary but not the owner of the policy? That is a common occurrance. The purchaser (e.g., owner) of the policy could change the beneficiary anytime. Even small amounts left in a revocable will are not certain sources of future income for the university. "

The good news is that I am so dull that it never crossed my mind that you were referring to me with the "smoke and mirrors" reference. As a recovering magician, I would have just taken it as a compliment, anyway.

Your example about the life insurance is apt. At one time, the USM Foundation would not consider a life insurance policy as a gift unless: (1) the Foundation was owner, and (2) there was a certain level of cash value already present to assure that the policy would not lapse if the donor did not keep up the premium payments.

I don't know about the capital campaign or the endowments at the USM Foundation, but I believe there is another means of participation (notice I didn't say "giving"?) called the Legacy Fund or some such, by which a potential donor can promise to leave the Foundation something, eventually, someway, like in a will, maybe. In exchange, the promisor gets his or her name published in a list along with others who have promised to do likewise. (I would refresh my recollection, but when I look at the USM Foundation website, I see the same "Under Construction" signs that have been posted for more than a year.) To my mind, that was a pretty attenuated means of "participating," because nobody could ever count on anybody doing anything.

As you say, Fireman, wills can be changed. In legal parlance, they are called "ambulatory" -- that is, they "walk," they are mutable, they are capable of alteration. I suppose the idea behind the less-than-full-commitment "participation" scheme is that most of the folks who say they will leave something to the foundation, really will follow through. And it gives the foundation fundraisers another way to succeed, add names to the donor lists, make positive gains, stride boldly into the future, fool some of the people some of the . . . oops. Pardon me. Just a little slip of my cynical tongue.

Anyway, I hope the Capital Campaign and the Endowed Funds include more "reliable" assets than those you and I have been discussing. We wouldn't even be having this discussion, if the information was available on-line. However, in the spirit of Hanlon's Razor (q.v.) I will assume that the good folks at the Foundation have better things to do than let the giving public know how their organization operates.

Date: May 16, 2005

quote:
Originally posted by: ram
" I suppose the idea behind the less-than-full-commitment "participation" scheme is that most of the folks who say they will leave something to the foundation, really will follow through."

ram, my guess is that most folks who say they will leave something to the foundation do follow through with that pledge - but only if the participant remains committed to the institution. I suppose that most folks review their wills periodically and occasionaly have their attorney prepare a codicil or write a totally new will entirely (or modify the terms of an recocable trust). I fear that events at USM during the past three years will give pause to previously committed givers. In that respect, monetary damage to the university is probably greater than meets the eye.

Date: May 16, 2005

quote:
Originally posted by: bow tie affair
"ram, former SGA prez Blake Hamm (prez before Loftus) donated a single-premium life insurance policy with a $50K benefit to USM about 2/3 years ago. After his "donation" he was invited to several black tie affairs for "large" donors."

Now that is really interesting. They got a young man (22 -23 years old?) who gives what the uninitiated would think is a big donation. (Hey, 50 grand is big in my book.) But as you imply Bow Tie, a youngster (non-smoking, good health) could buy a single prem policy for a reasonable sum. ($2,500 at 6% per year would grow to $50,000 in about 50 years, roughly the life expectancy of a 22 year old.) If he gives $2,500 cash, they say "thanks." If he gives a $50,000 paid up policy, they write an article about him in the Alumni News.

As public relations, it works. Recent grad gives back big to alma mater. For the grad, it works. $2,500 puts him among the high rollers. That's the way to network. Might even get a job offer out of the deal. Get on a committee or two. At worst, he's "only" out $2,500.

Who loses?

Date: May 16, 2005

quote:
Originally posted by: Firefighter
" I fear that events at USM during the past three years will give pause to previously committed givers. In that respect, monetary damage to the university is probably greater than meets the eye. "

Yup, me too.

The good news is that folks tend to forget and forgive. Or vice versa. When SFT moves on, it will take many years to recover the university's academic reputation. It may not take so long for the committed givers to return to the fold.

Of course, there is one question that has been nagging at the back of my mind: If SFT leaves under a cloud, how many of his "supporters" will yank their support? Will it be enough to make any difference?

It's one of those chances I'd be willing to take.

Date: May 16, 2005

A $50,000 donation to Tulane gets you a hand signed note from the President. Period. It takes about $300,000 to get noticed, much less invited anywhere. When SFT talks about "world class" he's not even living in the same world as those people.

BTW I know this for a fact, have the hand-signed note around here somewhere.

Date: May 16, 2005

quote:
Originally posted by: Tulane donor
"A $50,000 donation to Tulane gets you a hand signed note from the President . . . . have the hand-signed note around here somewhere."

We'd probably machine sign any note written from here (better check carefully. Yours may be signed by a machine also).

Date: May 16, 2005

Maybe, looked genuine, but then got nuthin to compare. The person in whose memory the donation was made, and especially her husband, were pretty well-known. My point was, of course, that's not a big deal to them.

Date: May 16, 2005

quote:

Originally posted by: td

My point was, of course, that's not a big deal to them."

Any university would appreciate your $50,000. A gift of that magnitude is nothing to sneeze at.