Failure First XXXV

AEFFSF

On Monday morning, Jan Abbeshire was looking over one of the first presentations her team gave to Coach Robert Siena regarding the Alan Edgewater Failure First Scholarship Fund. Alan was comfortable with Coach Siena’s decision to let Jan’s firm take the lead on managing this program even though they has no experience in such matters. Still, if Siena wanted to made this grand gesture and commit nearly $4.4 million to assure the foundation would last 100 years, she was confident that she could get a suitable team to manage the fund and disbursements. Laurie Ripp was part of the team along with a boutique investment firm.

She still couldn’t believe the coach entrusted Abbeshire & Bluestone on an ongoing basis with such a responsibility. As a consequence, she insisted on accountability and transparency over and above generally accepted practice. Part of that policy was to clearly spell out all fees including publicity and marketing expenses.

She reviewed one of the first spreadsheets they worked through with Coach Siena to assure the ongoing funding for AEFFSF. As it happened, the Coach followed through based on this analysis. 

	Portfolio Return	8%
	Tuition Growth/year	4%
	Base Tuition/year	$   50,000
	Tuition		Discount	PV
Year	(per year)	Funding	Factor	Cash Flow	PV SUM
1	50,000	50,000	0.925926	46,296.30	46,296.30
2	52,000	102,000	0.857339	87,448.56	133,744.86
3	54,080	156,080	0.793832	123,901.34	257,646.19
4	56,243	212,323	0.73503	156,063.89	413,710.08
5	58,493	220,816	0.680583	150,283.75	563,993.83
6	60,833	229,649	0.63017	144,717.68	708,711.51
7	63,266	238,835	0.58349	139,357.77	848,069.28
8	65,797	248,388	0.540269	134,196.37	982,265.65
9	68,428	258,324	0.500249	129,226.13	1,111,491.78
10	71,166	268,657	0.463193	124,439.98	1,235,931.76
11	74,012	279,403	0.428883	119,831.09	1,355,762.85
12	76,973	290,579	0.397114	115,392.90	1,471,155.75
13	80,052	302,202	0.367698	111,119.09	1,582,274.85
14	83,254	314,290	0.340461	107,003.57	1,689,278.42
15	86,584	326,862	0.315242	103,040.47	1,792,318.89
16	90,047	339,936	0.29189	99,224.16	1,891,543.05
17	93,649	353,534	0.270269	95,549.19	1,987,092.24
18	97,395	367,675	0.250249	92,010.33	2,079,102.58
19	101,291	382,382	0.231712	88,602.54	2,167,705.12
20	105,342	397,677	0.214548	85,320.97	2,253,026.09
21	109,556	413,584	0.198656	82,160.93	2,335,187.02
22	113,938	430,128	0.183941	79,117.93	2,414,304.95
23	118,496	447,333	0.170315	76,187.64	2,490,492.59
24	123,236	465,226	0.157699	73,365.88	2,563,858.47
25	128,165	483,835	0.146018	70,648.62	2,634,507.09
26	133,292	503,189	0.135202	68,032.01	2,702,539.09
27	138,623	523,316	0.125187	65,512.30	2,768,051.40
28	144,168	544,249	0.115914	63,085.92	2,831,137.32
29	149,935	566,019	0.107328	60,749.40	2,891,886.72
30	155,933	588,660	0.099377	58,499.43	2,950,386.15
31	162,170	612,206	0.092016	56,332.78	3,006,718.93
32	168,657	636,694	0.0852	54,246.38	3,060,965.31
33	175,403	662,162	0.078889	52,237.26	3,113,202.57
34	182,419	688,649	0.073045	50,302.54	3,163,505.11
35	189,716	716,194	0.067635	48,439.49	3,211,944.59
36	197,304	744,842	0.062625	46,645.43	3,258,590.03
37	205,197	774,636	0.057986	44,917.82	3,303,507.85
38	213,404	805,621	0.05369	43,254.20	3,346,762.05
39	221,941	837,846	0.049713	41,652.19	3,388,414.24
40	230,818	871,360	0.046031	40,109.52	3,428,523.76
41	240,051	906,214	0.042621	38,623.98	3,467,147.74
42	249,653	942,463	0.039464	37,193.46	3,504,341.20
43	259,639	980,162	0.036541	35,815.93	3,540,157.13
44	270,025	1,019,368	0.033834	34,489.41	3,574,646.54
45	280,826	1,060,143	0.031328	33,212.03	3,607,858.57
46	292,059	1,102,548	0.029007	31,981.95	3,639,840.52
47	303,741	1,146,650	0.026859	30,797.43	3,670,637.95
48	315,891	1,192,516	0.024869	29,656.79	3,700,294.74
49	328,526	1,240,217	0.023027	28,558.39	3,728,853.13
50	341,667	1,289,826	0.021321	27,500.67	3,756,353.80
51	355,334	1,341,419	0.019742	26,482.13	3,782,835.93
52	369,548	1,395,076	0.01828	25,501.31	3,808,337.23
53	384,329	1,450,879	0.016925	24,556.81	3,832,894.05
54	399,703	1,508,914	0.015672	23,647.30	3,856,541.35
55	415,691	1,569,270	0.014511	22,771.48	3,879,312.83
56	432,318	1,632,041	0.013436	21,928.09	3,901,240.92
57	449,611	1,697,323	0.012441	21,115.94	3,922,356.86
58	467,596	1,765,216	0.011519	20,333.87	3,942,690.72
59	486,299	1,835,824	0.010666	19,580.76	3,962,271.48
60	505,751	1,909,257	0.009876	18,855.55	3,981,127.03
61	525,981	1,985,628	0.009144	18,157.19	3,999,284.22
62	547,021	2,065,053	0.008467	17,484.70	4,016,768.92
63	568,901	2,147,655	0.00784	16,837.12	4,033,606.05
64	591,658	2,233,561	0.007259	16,213.53	4,049,819.57
65	615,324	2,322,903	0.006721	15,613.02	4,065,432.60
66	639,937	2,415,820	0.006223	15,034.76	4,080,467.36
67	665,534	2,512,452	0.005762	14,477.92	4,094,945.28
68	692,156	2,612,950	0.005336	13,941.70	4,108,886.98
69	719,842	2,717,468	0.00494	13,425.34	4,122,312.33
70	748,635	2,826,167	0.004574	12,928.11	4,135,240.43
71	778,581	2,939,214	0.004236	12,449.29	4,147,689.72
72	809,724	3,056,782	0.003922	11,988.20	4,159,677.93
73	842,113	3,179,054	0.003631	11,544.20	4,171,222.12
74	875,798	3,306,216	0.003362	11,116.63	4,182,338.76
75	910,830	3,438,464	0.003113	10,704.91	4,193,043.66
76	947,263	3,576,003	0.002883	10,308.43	4,203,352.09
77	985,153	3,719,043	0.002669	9,926.63	4,213,278.73
78	1,024,559	3,867,805	0.002471	9,558.98	4,222,837.71
79	1,065,542	4,022,517	0.002288	9,204.95	4,232,042.65
80	1,108,163	4,183,418	0.002119	8,864.02	4,240,906.68
81	1,152,490	4,350,754	0.001962	8,535.72	4,249,442.40
82	1,198,590	4,524,785	0.001817	8,219.59	4,257,661.99
83	1,246,533	4,705,776	0.001682	7,915.16	4,265,577.14
84	1,296,394	4,894,007	0.001557	7,622.00	4,273,199.15
85	1,348,250	5,089,767	0.001442	7,339.71	4,280,538.85
86	1,402,180	5,293,358	0.001335	7,067.87	4,287,606.72
87	1,458,267	5,505,092	0.001236	6,806.09	4,294,412.81
88	1,516,598	5,725,296	0.001145	6,554.02	4,300,966.83
89	1,577,262	5,954,308	0.00106	6,311.27	4,307,278.10
90	1,640,353	6,192,480	0.000981	6,077.52	4,313,355.63
91	1,705,967	6,440,179	0.000909	5,852.43	4,319,208.06
92	1,774,205	6,697,787	0.000841	5,635.67	4,324,843.73
93	1,845,174	6,965,698	0.000779	5,426.94	4,330,270.67
94	1,918,980	7,244,326	0.000721	5,225.95	4,335,496.62
95	1,995,740	7,534,099	0.000668	5,032.39	4,340,529.01
96	2,075,569	7,835,463	0.000618	4,846.01	4,345,375.02
97	2,158,592	8,148,882	0.000573	4,666.53	4,350,041.55
98	2,244,936	8,474,837	0.00053	4,493.69	4,354,535.24
99	2,334,733	8,813,830	0.000491	4,327.26	4,358,862.50
100	2,428,123	9,166,384	0.000455	4,166.99	4,363,029.49

The model assumed some level of tuition growth each year (50k doesn't do it for a full rise these days at a tier one institution.). Foundations are required to distribute 3% (or maybe 5%) of assets each year to, so if a student pool in any give year didn't "cost" 3-5% of assets, the foundation would have to find some other way to give the cash away (maybe some form of one-time grant). 

Typically foundations have indefinite lives. Although Coach Robert Siena set up a fund while he is alive, the general idea that the scholarship program, in his care, would continue indefinitely. So, from the beginning they did not limit the thought process to only a ten, fifteen or twenty year horizon. 

We assumed $50K as an average starting tuition that grows at 4%/year and a portfolio return of 8%, we can sustain a foundation on $4.4 million for 100 years (assuming 4 years of school for each recipient). See the "PV SUM" column for the amount you are looking for based on the life of the foundation (100 years used as a proxy for an indefinite life).  

**The model (attached) is very sensitive to portfolio return input, base tuition rate, and expense growth.

Note:  The $4.4MM referenced assumes NO additional contributions to the fund throughout the life of the foundation.  Essentially it would be a lump sum at the start of the foundation that could, by itself, sustain the initiative for 100 years.  The sum would be significantly less if there was ongoing funding through the years...at the awards ceremony (if there were such events), donors would likely make contributions.