Endowment and Security

PRIOR to the World War, nearly all of the colleges of the Middle West invested their endowment funds almost exclusively in farm real-estate first mortgages. During and after the war, good farm mortgages, at the accustomed high interest rate and based on a reasonable earning power of the security, became quite scarce; and colleges were led into making loans on farms at so high a valuation that too many foreclosures inevitably followed. These farms, quite generally, have been carried on the books of the colleges at the face of the mortgages plus foreclosure costs, with the expectation that the necessary losses would be taken at the time of their sale. It is needless to say that so few farms have been sold, up to the present time, that the ultimate losses cannot be estimated. They will vary with individual colleges. It is attempted here to show how this experience with farm mortgages has tended to affect the investment policies of the privately endowed colleges of the Middle West; what tendency has developed toward diversification of investments; and how such diversification as has set in compares with the diversification of investments practiced by older colleges of the East. The financial reports, from which facts and conclusions are drawn, have been obtained through the offices of the presidents of the colleges. Forty-eight of the 9i colleges of eight states of the Middle West: Wisconsin, Illinois, Minnesota, Iowa, Missouri, South Dakota, Nebraska, and Kansas, and six selected eastern colleges have co-operated by furnishing their financial reports for the tenyear period, I9I7 to I927. The data summarized in Table I show that many middle western colleges tended to reduce their proportionate investments in farm mortgages and farm real estate during this period and had come to practice greater diversification. It will be observed that, considering total endowment investments of all colleges of the eight states, the percentage of investments in farm mortgages and real estate was the highest at about the time of the depression of I92i, after which time it declined. The proportion of investments in city mortgages and real estate did not change much during the ten years. The percentage of investments in stocks and bonds seems to have run counter to that of investments in farm mortgages and real estate, and was the lowest at the time

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