<p>Modadunn:</p>
<p>That article and those statements are so misleading that I honestly don’t know even know how to react. It’s very disappointing from Amherst whose nose just grew as much as Princeton’s did with a similar line of BS this week. I think it’s insulting to the Amherst students and community.</p>
<p>There is only one reason that Amherst (like Princeton) is going massively into debt to fund operating expenses: they screwed up the management of their investment portfolios so badly that they can’t even cover their own cash flow needs. </p>
<p>It’s not the operating expenses that are killing them (any more that they are killing all colleges right now), it’s the cash call commitments from private equity and other limited partnerships in the endowment. Amherst has $503 million in cash call commitments on an endowment that is probably not worth much more than $1 billion. You dont see Swarthmore and Williams and Pomona issuing taxable bond debt to raise cash. If this were a “good thing” to do, don’t you think these other similary well-endowed schools would be jumping at the opporutnity to take on crushing debt loads? They aren’t doing it because they managed their portfolios with sufficient cash liquidity to cover their needs for several years.</p>
<p>Coming out with a line of BS that borrowing $100 million (which is in effect being used to buy additional leveraged positions in failing private equity partnerships) is smart is just plain silly. The interest costs on that taxable bond are about $5 million a year. That’s an additional $5 million a year in budget cuts that Amherst has to make every year.</p>