Yet another example of Warren Buffett being out-performed, over a long period of time, by an investment pool that most people have never heard of :
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$75,000 a Record Gift for Yale? Here's How
June 1, 2004
By STEPHANIE STROM
Yale University will celebrate the largest class gift in
its history this week when it credits the class of '54 with
a contribution of more than $110 million.
The bulk of the gift, $90 million, comes from an unusual
fund-raising exercise born 25 years ago out of $75,000 in
seed money and frustration with the university's financial
management.
"Savvy money management is taken for granted by most
graduates of universities today, but it is a relatively new
phenomenon," said Richard Gilder, a member of the class of
'54. "Yale does a great job of managing the endowment now,
but back then its investment performance was pretty lousy."
In 1979, Mr. Gilder and a group of his classmates were
attending their 25th reunion and bemoaning the sorry state
of Yale's finances, when Mr. Gilder proposed a novel idea:
What if they pooled their donations and entrusted them to a
professional money manager with a plan to turn the
principal and the interest earned over to Yale at their
50th reunion?
Mr. Gilder, one of Wall Street's most famous money
managers, has made and given away several fortunes in his
lifetime. It was he who wrested the management of Central
Park from the City of New York, which led to the park's
renaissance. So few of his classmates balked at his
suggestion.
Two years after the reunion, after receiving nonprofit
status from the Internal Revenue Service, the 54/50 Fund
was born. Some 40 members of the class of '54 seeded it
with $75,000, and an additional 31 put in about $300,000
more - no one can remember the precise amount - on the
occasion of the 30th reunion.
The fund performed better than expected, growing at a 37
percent compound annual rate of return on the original
investment.
"We all thought it was a terrific idea when Dick proposed
it, but we had no idea it would be so successful," said
Donald K. Clifford Jr., known as Obie. "We put in next to
nothing and came out with millions."
Mr. Clifford contributed $5,000 to the fund but was
recently thanked by Yale for his contribution of
$2,562,000. Joel Smilow, the current class secretary, put
in $15,000 and was credited for a gift of $3,501,791.
"What's happened is beyond anyone's wildest dreams," Mr.
Smilow said. (The alumni received tax deductions for their
original donations only.)
The fund did not replace direct giving to the university.
There is the Smilow Field House, courtesy of a gift from
Mr. Smilow, and Johnson Field, an athletic field financed
by another class member, Charles B. Johnson.
"This class has been incredibly loyal to the university,
and the 54/50 Fund has perhaps encouraged that," said
Christopher A. Forster, a class of '54 member.
Over the years, Yale tried numerous times to get the class
to hand the gift over. "They didn't like it because Yale
didn't control it, but we held on to it anyway," Mr. Gilder
said.
Five years ago, concerned that Yale was falling behind in
the sciences and engineering, the university's president,
Richard Levin, asked if the class would unleash some of the
money early to back an expansion of Science Hill on campus
and kick off a $500 million enhancement.
The class drove a hard bargain. The fund was then about $70
million, but its stewards figured it would continue to
grow.
"We were giving up four years of income," Mr. Gilder said.
"So we told them we wanted a credit for a 10 percent annual
compounded return for those years."
Ultimately, the fund got credit for raising $90 million.
The new $25 million Environmental Science Center bears the
class of '54 name, as will a new $25 million chemistry
building that is under construction.
The remaining $20 million went to a matching fund aimed at
enticing class of '54 members to make donations to the
class's 50th reunion gift. Last week, Mr. Smilow said the
fund was almost depleted.
Almost as valuable as the donation, Dr. Levin said, has
been the esprit de corps the fund has fostered. For that
reason, he has encouraged recent classes to do something
similar.
"Their interest in their investment fund actually brought
the class of '54 closer to the university, I think, and
that's never a bad thing," he said.
Copyright 2004 The New York Times Company |
