Endowments, charity funds feel pinch in economic downturn

Tim Landis

As treasurer of a student-run investment fund, Illinois College student Myles McCabe says he’s learned a lesson in the school of hard knocks.

The Warren Billhartz Student Investment Fund at IC has lost more than 9 percent since the first of the year.

“After one meeting in December, Aaron (fund president Aaron Taft) said, ‘If this was a hedge fund, we'd both be fired,’” said McCabe, a sophomore in finance and economics.

IC’s student-run fund is one of many endowment and charitable funds that, according to John Stremsterfer, executive director of the Sangamon County Community Foundation, are fielding the same kinds of anxious calls from donors as are individual investment advisers.

The Billhartz fund — named for a 1949 IC graduate who provided $100,000 in seed money in 1995 to provide real-world experience for finance and economics majors — was at $286,959 going into Monday’s big sell-off on Wall Street. That was its lowest balance since 1997 and compared to a peak in 1999 of $585,959.

McCabe said club members have tried to shake up the fund, but there are few places to hide in today’s turbulent markets, adding that the fund “has never been about day-trading or a quick profit.”

“It eases the sting to know we beat the S&P by 8.5 percent in 2008, but the performance is still pretty bad,” he said.

On its part, the Sangamon County Community Foundation, which manages 82 funds for a variety of local charitable and scholarship programs, is planning a workshop for donors to discuss the 27.5 percent drop its major investment fund suffered in 2008.

The foundation had assets estimated at $5.2 million at the end of 2008, compared to $6.5 million at the end of 2007.

“We are very conscious of the world out there,” Stremsterfer said. “We want to make sure we’re transparent in talking about this situation. We want to go to our donors, who are very generous.”

The Chronicle of Philanthropy released a special report in February that showed several major foundations lost one-third of their assets in 2008. The two largest, the Bill & Melinda Gates Foundation and the Ford Foundation, were down 20 percent and 30 percent, respectively, for the year.

Stremsterfer said community foundations have more flexibility than private foundations, which are required to pay out a certain percentage of funds annually, whatever is happening in the economy. However, local charitable causes and scholarships funded through the foundation have not yet been affected, he said.

“The good thing for an endowment is that it’s there in perpetuity, even more than a 401(k), where you’re expected to take the money out eventually. The whole notion is that you put the (endowment) money there forever,” Stremsterfer said. “In that sense, we have time on our side for it to come back.”

The foundation recently announced $20,000 in grants to 15 not-for-profit agencies ranging from meals and activities for children to emergency services for seniors.

A group of three Springfield banks created the foundation in 1924.

Harmon Deal of Jacksonville, who advises the Warren Billhartz fund, said the Illinois College fund still paid $7,000 in dividends to the school last year. He also pointed out that within a year of a 1997 year-end balance of $210,000, the fund was at $427,000.

Deal, who operates his own investment firm in Jacksonville, said one of the lessons students should take away is a buy-smart and hold-on philosophy when it comes to stock-market investments.

But he said the latest downturn is taking more patience than most.

“It’s psychologically hard right now to look on the bright side. People are selling because they think it’s going to be lower the next day,” Deal said.

McCabe said he, for one, is buying it.

“I personally am of the opinion the economy will rebound, and anyone who can overcome the fear the market is inspiring now will do well for themselves,” McCabe said.

Tim Landis can be reached at (217) 788-1536 ortim.landis@sj-r.com.