From an investment strategy perspective, the Committee on Investments seeks to partner with investment managers who espouse a “preservation of capital” investment philosophy. The endowment assets are managed with the objective of generating a total return sufficient to cover spending in support of programming; to preserve the purchasing power of the endowment over the long run, that is, to exceed inflation; and to provide consistent support for academic and residential programming that grows both in dollars and as a percentage of the operating budget.
Because the College has been successful in achieving this goal, spending from the endowment – for financial aid, faculty salaries, benefits, library resources, facilities operations and the like – has become an increasingly large percentage of funding for the operating budget. Ten years ago, $4.4 million, or less than 8% of operating revenue, came from endowment spending. For FY09, the endowment is expected to provide $10.6 million or 10.6% of budgeted revenue. The portfolio is broadly diversified among geographic locations and asset classes and has a tilt toward equities and equity-like investments.
The College’s investment guidelines are based on a long-term investment horizon in accordance with the College’s status as a perpetual entity. The investment portfolio’s target asset allocation is based on this long-term perspective. With this perspective, the greatest threat to the investment portfolio and the value it provides to the College is a reduction in the purchasing power of the portfolio in inflation adjusted terms.
To achieve its investment objectives, the Endowment shall be invested in equity, debt, and alternative asset classes. The Committee on Investments retains the authority to determine the overall target allocation between these asset classes.
The Endowment will be diversified by geography and across the capital structure (e.g., bonds and stocks) and liquidity and leverage will be monitored carefully. The purpose of diversification is to provide reasonable assurance that no single security or strategy will have a disproportionate impact on the Endowment.
Following asset reallocations in spring 2009, the College’s only directly invested equity portfolio was closed and funds were moved into mutual fund investments. As a result, the entire pooled endowment is now invested in mutual funds. Of the remaining non-pooled assets (deferred gifts, other endowment funds, funds held in trust by others, and pledges receivable), all are held in mutual funds, pooled fund investments or real estate, with the exception of pledges receivable.
The College’s overall performance objective is to generate sufficient returns to support current operating needs while maintaining the long-term purchasing power of the endowment fund. Historical averages indicate that an annual return between 8-10 percent is needed to provide adequate support for operations while protecting against inflation and covering investment management fees over the long term. An additional goal is to generate return which exceeds the measure of inflation, achieving “real” growth of the endowment.