The old man’s money is still at work, 153 years after his death.
When Middle Tennessee ironmaster Montgomery Bell passed away at age 86 in 1855, he left $20,000 in his will to establish a school for boys “who are not able to support and educate themselves and whose parents are not able to do so.”
His executors socked the money away in Tennessee bonds, and by the time they felt that the time was right to start the school in 1867, the fund had more than doubled to $46,000 in value.
Across the Nashville area today, leaders of private schools are assuming the same role the stewards of Bell’s bequest played so long ago. They are seeking to replicate Montgomery Bell Academy’s success — then and now — in building endowment funds to support their educational missions.
Collectively, the endowments of 10 of Nashville’s best-known private schools had assets of $134 million in June of 2007, the latest publicly available data. That number is right in line with data from the National Association of Independent Schools that indicates its 106 member schools in the Southeast have an average endowment of $13.1 million. Nationally — counting numerous wealthy schools in New England and elsewhere — the average fund comes in at $20.1 million.
And even though all-boys MBA grew into a 20th-century institution populated almost entirely by white kids from well-off families, it and other local schools now seek to build endowments that will make it increasingly possible for less fortunate families across the social spectrum to give their youngsters a top-flight private education.
“That scholarship money is not being spent to recruit jocks,” said an insider at one local school. “From what I have seen at schools around town, it is usually going toward real efforts to bring in talented students who could not otherwise attend.”
Private equity, public appeals
Old Man Bell’s $20 grand is equivalent to something between $500,000 and $6.5 million in today’s dollars, as calculated by various measures. MBA’s endowment has grown from that starting point to a whopping $62.9 million, as of June 2007, the most recent date for which information is available.
While MBA’s fund is far larger than any other private-school endowment locally (see chart on page 10), other local schools have ramped up their efforts to build permanent and growing investment portfolios whose principal remains untouched over the decades, yielding a constant stream of revenue to support financial aid and other strategic priorities.
No local school is ever likely to rival prep-school endowments like the $1 billion held by Phillips Exeter Academy in New Hampshire or, closer to home, the $239 million of the Westminster Schools in Atlanta, which has been the beneficiary of a nice big gulp of Coca-Cola stock. But some Nashville academies are approaching their growth goals with a sophistication more often seen at institutions with much larger endowments.
Co-chairing the investment committee of MBA’s board are G. Thomas Curtis, managing principal of the Nashville office of Diversified Trust Co., and Bass Berry & Sims attorney James H. Cheek III. MBA and most or all local schools retain fund management firms to carry out the investment strategies set by their boards.
Curtis won’t reveal who manages MBA’s money, nor whether the manager is local or out of town, but he says the school has invested about half of its endowment in U.S. and foreign stocks, with about a fifth in “traditional fixed-income” bonds and a third in “special strategies and alternative assets.”
The latter category includes hedge funds and private equity. University endowments have utilized these investments for some time — at Vanderbilt, recently retired Treasurer William Spitz had notable success with them. But MBA appears to be alone among local prep schools in this regard, as the publicly available Internal Revenue Service filings of other schools generally reflect more plain-vanilla portfolios dominated by mutual funds and government bonds.
Curtis describes the investment committee as striving to find just the right mix.
“What you’re looking for are assets that have as little correlation to each other as possible, while still getting positive returns in the range you’re looking for,” he said.
The private equity component, he notes, serves as something of a stabilizer at a time of wild fluctuations in the prices of publicly traded securities.
The Ensworth School, which has set a goal of building its endowment to $20 million in coming years, has two equity managers. Its trustees made a conscious choice to retain firms from out of town. Although the school’s board includes a number of financial professionals, some of whom sit on its investment committee, those individuals do not themselves manage the money.
Avoiding any potential conflict of interest is “absolutely critical,” said Bedell James, director of development at Ensworth.
In recent years, Ensworth’s managers have each achieved average annual returns around 17 percent, besting the average S&P 500 return of just under 10 percent a year.
Mark McFerran, director of external affairs for Brentwood Academy, says his board has set a near-term goal for its endowment — “an aggressive one that we want to get after” — but is not ready to disclose it.
Nashville’s Catholic schools each raise some funding independently, but the Endowment for the Advancement of Catholic Schools exists as a common source of support for all of them.
“Frankly, it’s not nearly as large as we would like it to be,” diocese spokesman Rick Musacchio says — echoing a refrain heard from many of those interviewed for this article. When it comes to endowments, there is no such thing as “enough.”
The purposes of wealth
All of Nashville’s larger private schools employ development staffs to raise money for both their endowments and more immediate needs. Discussions with personnel at several schools suggest they face a constant struggle against “donor fatigue” in a city replete with good causes seeking support. Balancing that factor, though, is continuing economic growth that brings new people and new money to town.
The full cost of tuition and fees for a year at one of Nashville’s more elite or specialized schools can exceed $20,000. Few of the schools generate enough earnings from endowment to cover all the financial aid that they offer to families unable to cover such expenses — apart from MBA, whose endowment funded nearly $1 million in financial aid during the 2006-07 academic year, with 18 percent of the student body receiving tuition assistance.
Nearly all local schools, however, have made increasing financial aid a primary goal in their endowment-building efforts.
“We want to ensure the affordability of the services that we provide to as broad a section of the population as we can,” said Chad Handshy, director of finance and business at Currey Ingram Academy.
For one local school chief, endowment-building is a new part of a new job. Ricky Perry took over as president of Goodpasture Christian School on July 1, after the unexpected death last year of Gilbert A. Drake at the age of 47. He says Goodpasture’s board has asked him to begin the process of creating an endowment.
“We’ve got some assets we can use that way,” Perry said. Alumni and parents have given generously to the school over the years. Now, Goodpasture is looking to turn those assets into a permanent fund.
Accruing an endowment large enough to accomplish strategic goals for the school won’t be an easy process, for Goodpasture or anyone else starting from scratch. And it won’t be fast. MBA has a 150-year jump on Perry’s school. Philips Exeter had a seven-decade jump on MBA.
Officials at both Brentwood and Ensworth report feeling some effect from the financial market rough-and-tumble of the past year or so. Brentwood’s endowment dropped slightly since the summer of 2007 and one of Ensworth’s funds suffered from exposure to the subprime mortgage meltdown, though its returns have remained in positive territory.
But school officials say they must look past short-term market swings, despite the fact that the demands inherent in endowment creation don’t fit well with the episodic nature of school administrations, boards of trustees and, for that matter, human life spans. For instance, one key source of endowment funding, as Montgomery Bell demonstrated, is bequests.
When a greater or lesser business titan of Nashville passes away, odds are that some of his or her wealth will pass to one of the area’s private schools. Development officers persuade people of means to make such arrangements in their wills. But many years can pass between the moment the commitment to leave money to the school is made and the moment of death.
Handshy takes such challenges in stride at Currey Ingram.
“We have a long-term perspective,” he said. “This school’s going to be here 100 years from now, and more. You’re in it for the long haul.”