Message from the Bursar April 2016

This year I followed in the footsteps of Chris Blencowe and became a College Tutor in addition to my responsibilities as Bursar. Meeting fifteen freshers one by one, for the first time, was a really heartening experience; aside their enthusiasm, every one of them is bubbling with what an amazing place Pembroke is and how lucky they are to be here. I think they have a point: Pembroke remains a uniquely friendly and supportive place and the light touch diligence of the Tutorial team helps to keep it that way. Although we often focus on academic success, this is in large part a by-product of the College being such a supportive place; and the ambiance and food have a large part in attracting the strongest applicants in the first place! The fact that it is somewhere that College staff love working is another side of the same story.

In such an environment, what role does money play? We all know that wealth is no guarantee of happiness, but in reality a lot of what we manage to provide for our students would not be possible without our additional resources. The current level of endowment certainly helps, but it does not give us much flexibility to meet new challenges. Right across the country rising levels of stress are being observed amongst students and whilst some may manage to remain calm in the face of mounting debt, others find it a continual worry. Drop-out rates in many universities are rising. Pembroke is fortunate to have supportive Members who ensure that we can sustain a team of very engaged Tutors. We can provide funds where necessary for counselling and other advice and offer hardship support for undergraduates who fall through the gap between the state interpretation of “well off” (total household income) and the reality of some families with multiple dependent children or a non-contributing adult living with them. We are able to reduce costs for those who need it by keeping student rents low and offering high quality and good value catering, while the sports and other facilities provide an important outlet. We work hard here in the College to make all this possible and the students continue to respond in the most positive manner.

For those who wish or need to pursue further study, there are challenges beyond merely graduating. These days it is increasingly difficult to get funding, especially for non-Science PhDs, and outstanding potential researchers are increasingly obliged to take career paths that help them to pay off their loans more rapidly; that, or they are tempted by seemingly better offers from universities outside Cambridge or the UK. The attractions of graduate study are also undermined by the relatively small proportion (about half) of our graduate students whom we can accommodate ourselves; the private housing market in Cambridge is a tough place for those on low incomes and who are already carrying a burden of debt. We need to be able to offer a viable alternative both to the best of today’s prospective graduate students and to the best of the future’s, by means of funded studentships irrespective of their subject. Again, with the help of Members, we are building the strength to address this situation and to try to ensure we have the resilience to provide future generations a special experience too.

This brings me to the question of how the financial life of the College is faring. Charity organisations do not really have a profit and loss account, so we judge our operational efficiency in three ways:

(1) whether, once we have paid for the essentials, we have any operational funds left over for renovations and improvements
(2) how our expenditure compares with other colleges (there is extensive benchmarking, and broadly we perform most favourably)
(3) how our expenditure evolves over time (is our efficiency improving; generally, it is)

In addition, we have to consider the effectiveness of our operations; for instance, we are trying to spend more on maintenance of the College’s fabric and address some of the chronic problems of damp basement rooms and so on. We follow good process in tendering, for example, but actual effectiveness will naturally be more of a subjective judgement by those involved or affected.

In balance sheet terms, our accounts show our endowment standing at about £73m, which is less in real terms (higher education inflation is generally taken as CPI+1%) than it was in 1980. However, as this graph shows, that is a tale of two halves.
Endowment Levels 1985 - 2015

Up until about 2007 we were drawing down our endowment at a rate which with hindsight looks over-optimistic about the sustainability of investment returns. We were not alone; most of you will remember the era of optimism running up to 2008. Since then we have reduced the draw-down rate significantly and steadily (from 5.9% a year in 2008 to 3.4% last year) and our alumni have been generous in contributing to the Annual Fund to enable us to do this while maintaining high-quality educational provision for the scholarly community. We have also had many direct donations into the endowment from people like you and we can see a steady real terms endowment growth since 2008 as a result. A high proportion of our endowment is earmarked for particular purposes; this is good up to a point in that it ensures that the gifts are used for a particular worthy and centrally agreed objective and the College does have enough flexibility at present; but it also means we must find greater flexibility in the future to address whatever new challenges the years and decades might bring.

Our endowment is invested mainly in equity and property:
Endowment Portfolio 2014-15

Top 10 investments:
– College property £13.8m
– Bidwells – land £9.1m
– University endowment fund £6.7m
– Quilter Cheviot – UK equities £6.4m
– Vanguard – developed world equities £4.1m
– Charities Property Fund £4.0m
– GMO – overseas equities £3.8m
– Hedge fund (being disposed of) £3.4m
– Vanguard – US equity £3.0m
– Cheffins – commercial property £2.5m

We often seem to be at least in the top half of Colleges on investment performance, often high within it, and in the coming years we look forward to some significant gains from property development on Pembroke farmland around the city which will keep us well placed in the “league table”. The wealth of many colleges is based on the slow expansion of Cambridge into their agricultural land, and Pembroke has benefited from this in the past. We have one application in train to build 60 houses on Pembroke land near Linton. When permission is eventually granted, this will add about £5m (net) to the College endowment. The land was bequeathed to the College more than a century and a half ago; and a much larger piece behind it will certainly be developed over the coming decades. We also have land near Teversham and near Soham which will be developed at some point in the tenures of the next three or four bursars (at the current rate of attrition!).

The equity portfolio we have is largely managed by several investment houses; these are periodically reviewed by the Investments Committee on which five experienced alumni sit. We get a considerable discount on the management charges from some firms (and sometimes are lucky enough to have the management costs entirely waived). The only remaining Hedge Fund investment in our portfolio is being redistributed. Holding more cash than usual is to be expected, bearing in mind that cash flow forecasts for Mill Lane show the necessity of the endowment lending to that project during the period of construction. It is likely to be the equity portfolio which is reduced to fund any short-term loans.

This brings me on to Mill Lane. The broad transaction for Mill Lane is planned as follows. Please note that I am sparing you the detail of the many intermediate steps and legal structures allowing us to manage VAT, develop the land, equalise particular risks amongst Colleges etc. and am instead giving you a broad outline.

We will obtain 200-year leases on the land where the Mill Lane lecture rooms and Millers Yard stand (we currently have a 25% freehold in the latter which we would keep). This will cost us about £14m, with details on exact division of costs awaiting detailed agreement. Those buildings will be demolished and we expect to construct 170 new student bedsits at a cost of about £17m; 70 or so of these 170 rooms will be let to Darwin students for the first 50 years of the development (as our own graduate need grows). We plan to purchase a similar lease on some 2300m2 of mainly listed buildings (those directly opposite Pembroke’s Porter’s Lodge along Trumpington Street and Stuart House, where the University Careers Service has been since I was a student and before); we have not concluded a price negotiation but expect to pay around £9m for those buildings and we may need to spend up to £5m refurbishing them. We have £10m envisaged towards the costs of an auditorium and a tunnel; for both of which significantly different options exist; making a grand total of £55m. The resulting development will, as a whole, transform the College’s future by providing more and better accommodation to meet present and future demand, embedding research and exchange of interdisciplinary ideas through academic and corporate partnerships still further into the ethos of the College, making Pembroke all the more attractive to the brightest and best, increasing and improving our provision of teaching rooms, and creating an auditorium and other key facilities that in some cases we have had to rent from other colleges; all in all, the development will give the entire Pembroke community, including you of course, something of which it can be proud and that is a disruptive, positive acceleration in Pembroke’s continuing evolution.

I will be writing to you again in a year’s time, by when I hope to be reporting on significant progress on Mill Lane, an ever-strengthening endowment and more confidence than ever about Pembroke’s future. My colleagues and I remain tremendously grateful to you for giving us this confidence and for showing your interest, engagement in and support for Pembroke.

Yours sincerely,

Dr Andrew Cates