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Defining Asset Value

February 05, 2009

Like most of you, I approached opening my third-quarter investment statements with some dread. And as you know, that was before we endured the financial markets’ wild ride in October, the worst month in the American stock market since 1987.

Without question, we are witnessing unprecedented turmoil in the global economy. We are bombarded with headlines about the flagging real estate market, the lingering credit crisis, and troubling trends in leading economic indicators. Fear abounds that the current economic downturn may be unusually deep and protracted.

In these times of uncertainty, we need to exercise caution, to be sure, but we must also move forward. At Lewis & Clark, we remain committed to providing our students with an exemplary education while being prudent stewards of our resources. In my view, we have a responsibility to continue to invest in our people, our infrastructure, and our plans for strategic growth in order to be well positioned for the future. Our community deserves no less. Our mission and core values demand no less.

Our first concern is, of course, our students and their families. To date, we have had few students or parents approach Student Financial Services with emergency situations and requests for new support. We recognize, however, that our families’ ability to pay may be affected by rising unemployment, the devaluation in home equity and in college savings plans, or the current credit squeeze. As we prepare our budget for the next fiscal year, we will be especially mindful of the need to maintain a robust system of financial aid.

We are fortunate that interest in the undergraduate college, the law school, and the graduate school remains high. Our admissions counselors report solid attendance at our recruitment events, and applicants for all three schools continue to be strong.

In addition, Lewis & Clark’s overall financial situation is quite stable. Earlier this year, when the auction rate security market faltered, Lewis & Clark–along with many other large institutional borrowers–faced an unprecedented increase in our debt service costs. Over the summer, we were able to refinance our debt successfully. We now have very favorable bond ratings from Moody’s and Standard and Poor’s, A3 and A- respectively.

Lewis & Clark is served exceptionally well by our board members who sit on the finance and investment committees. Our investment returns continue to meet or exceed the performance of our peer colleges, even in these times of extraordinary volatility.

Like other colleges and universities, however, Lewis & Clark has suffered a significant decline in our endowment. Fortunately, because of our conservative endowment spending policies and practices, we are cautiously optimistic that the negative impact of this dip on our operations can be managed. Our endowment spending rate is calculated on the basis of a 16-quarter rolling average, which means the market’s healthy performance over the last four years will help us weather this current downturn. Of course, if market conditions continue to deteriorate, the effect on our finances will become more pronounced over time.

In the weeks and months ahead, we will remain vigilant in monitoring Lewis & Clark’s operating budget in light of evolving economic circum tances. As we look to next year’s budget, we will model various income projections in an effort to anticipate and respond to any eventual budget shortfalls. We will also analyze our expenses carefully, keeping budget increases at a minimum and turning a watchful eye to potential cost savings in order to safeguard our long-term financial health.

As I reflect on the vagaries of the financial markets, I take assurance that Lewis & Clark’s most valuable assets are our people: our inspiring students, our dedicated faculty and staff, and our loyal alumni and friends. Now more than ever, your support will help ensure the quality of a Lewis & Clark education and enable us to be responsive to the growing financial needs of our returning and incoming students. As your circumstances allow, I ask you to remember Lewis & Clark in your year-end giving plans.

I wish you and yours all the blessings of the holiday season.

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Thomas J. Hochstettler

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