Dickinson College
Sustainable Investments Task Force
7/25/13 Meeting Minutes
Task force members in attendance were: Jim Chambers (Chair), Margaret Lindsay (Co-Chair), Mara Donaldson, Michelle Fisher, Michael Fratantuono, Steve Hietsch, Adam Laird, Justin McCarty (proxy for Will Kochtitzky).
Absent were: Will Kochtitzky and Neil Leary.
Others in attendance were: Sean Witte (Controller) and Keith Gillespie (Assistant Treasurer), Won Yong Kim (Assistant Professor, IB&M).
Guests in attendance were: Alice Handy, CEO - Investure; Hance West, CIO – Investure; David Landry, Investment Analyst – Investure.
Chair Jim Chambers called the meeting to order at 1:02 PM.
The minutes from the last meeting were reviewed and some questions asked. Mara Donaldson asked that the minutes reflect Jim Chambers joined the meeting via telephone. She also requested to make clearer the reference that Dickinson is the only school who has a task force like this. Mara also added that Reinvest Dickinson is eager to have available information which we have talked about posted on a website which was mentioned at the end of the minutes. Jim Chambers said Steve Hietsch has outlined a website and Jim is in the process of getting approval to have the website posted. The minutes were approved with the revisions discussed. Revised minutes will be sent to the committee electronically after the meeting.
Jim Chambers turned the meeting over to Margaret Lindsay who acts as a representative of the board of trustees Investment Committee on the task force. Margaret gave an introduction on Investure. Her involvement on the Investment Committee predates Investure back to when the college was managing the investments themselves. At one point it was decided to bring in an outside firm to manage the endowment. A number of firms were considered. Investure’s business model was unique and had a service component to it. We look at them as a special resource and are very fortunate to have them.
The meeting was turned over to Alice Handy. (Please see the presentation provided which is intended to be a resource.) She explained Investure’s model calls for them to be the investment office of their clients of which there are a limited number by design. They wanted to be here at the meeting in person to have what is a very serious conversation. It did not feel right to not do it sitting around the table in person. Alice explained the preferred way for managers to manage money in the investment world today is in pooled accounts. They have multiple investments and multiple clients, but mostly multiple clients.
Alice Handy directed everyone to page 4 of the handout to review Dickinson’s endowment structure. It is a fairly complex structure with pooled funds underneath pooled funds. The yellow balls indicate multiple managers. Jim Chambers asked for an explanation of the assets not managed by Investure. 1. Funds held in trust. (Sandia Foundation Woodward Fund is a fund shared with the University of New Mexico.) Dickinson is the beneficiary but does not control the management or the assets. The college does have a representative on the Sandia board. 2. Pledges: these are pledges to the endowment not yet received. 3. Separate: these are funds that are kept separate and not managed by the pool per the donor. Mike Fratantuono asked if the managers have other companies for whom they handle funds. Alice said the managers do have other clients besides Investure.
Moving on to page 5 of the presentation Alice asked the committee to remember investment managers do not always know everything that is in a portfolio. They give Investure lots of information. The things that we really care about and can do something about. They do not always know every single company in the fund. Also, remember this is dated material; everything is always after the fact. David Landry explained how he compiled the information on this chart showing the fossil fuel exposure. Alice Handy said they tried to think broadly about where to get the info. and be as inclusive as they could be. The chart shows investments in fossil fuels of $14M, about 4% of the endowment pool. Investments in coal are about $1M, about 0.3% of the pool. Remember, the managers have multiple clients and we cannot tell them not to have fossil fuel in their portfolio. Alice said they have been compiling this information since January-February so there is no history. Fossil fuels have been in a down cycle and have not been a good place to invest in so the managers have generally not been investing in as much. Hance West agreed it has not been a good price in the past five years. Alice added 66% of Dickinson’s endowment pool is invested in some kind of commingled vehicle. This means that for this 66%, not only is Dickinson’s endowment pooled with those of the other 12 Investure clients, but the Investure funds are pooled with funds invested on behalf of the managers’ other clients.
Hance West discussed page 6 with the committee. How do you measure the cost of under-performance if you exclude investments from a portfolio? If there is a cost, how much is the cost? Small differences over long periods of time can be significant. This chart gives a picture of the scale of the difference in the various scenarios. Alice added this could also equally apply to sustainability. How much are you willing to give up to invest in sustainable investing if it could mean a lower return at some point? It could make a huge difference over time.
Alice Handy moved to page 7 of the presentation. This is an Aperio Study that claims they could divest from fossil fuels without any appreciable effect on return or risk. The point of this chart is not to debunk what they are saying. This chart just puts Dickinson in to compare. It is hindsight, not going forward.
Jim Chambers adds it is important to understand these core principles.
Mara Donaldson asked what if Smith, Middlebury, Barnard and Dickinson moved to look at divestment. What if multiple shareholders get together and want to divest, is it still too difficult? Alice said they would have to sell all current investments and all 13 clients would have to agree. It would be very difficult. They looked at making two classes of shared pools. But, to divest one of the pools you would have to sell 66% of its assets (the percentage that are commingled with core managers’ non-Investure clients). And, the use of managers who commingle Investure funds with those of non-Investure clients is such a major part of who we are and what we do that it would be extremely difficult.
Mara Donaldson asked if they have hired a new Environmental Social Governance person. Alice said they are in the process of hiring one. They hire managers who are ethical and smart investors. The ESG part needs to be part of that. It is hard to define ESG. Their managers are adopting ESG principles and are tailoring them to their own needs. They would like the whole portfolio to get there instead of selectively getting there…it will be gradual. They need to come back with guidelines for what an ESG manager is that make sense. The principles are different for each sector. It will make them better managers and they will figure it out, but it will not be overnight.
Adam Laird asked how much money it would take to sell off the 66%. (Transaction costs, opportunity costs, etc.) Alice said when you get out of pooled accounts you generally just get out. There are sometimes exit fees. Hance said it can be hard to measure but it probably costs ½ - 1% over the period they are transitioning. It is hard to measure because you are taking out of a pooled fund and transferring the net asset values. Costs can crop up in many ways. There are definitely costs but they are hard to measure. Alice said it is fair to say most of the costs are transition costs. The opportunity costs of not being in the market while transitioning from one fund to another are huge. Margaret Lindsay said we have access to a lot of pools that we could not have access to with our small stand alone endowment. You have to have a certain size to join these funds.
Mara Donaldson wondered if there is a coalition of other schools who might want to move funds. She wants to get an idea of what kind of movement might be possible.
Mike Fratantuono asked Alice if in terms of Investure’s movement to ESG does that position them, relative to competitors, in a favorable way. Alice said they are not marketing themselves. They are trying to find a way to message this issue. Everybody is trying to deal with the fossil fuel problem. Alice said this is why they are moving on the idea of sustainable investments. (pages 12–15 of the presentation) Two things happened at Investure: 1. In 2010 they created the Sustainable Investment Fund. 2. The next year they started working to develop a proxy voting policy. Even though they are in full funds they cannot tell the managers what to do. They tell them this is what our clients would like us to do. They were looking for sustainable fund investments that would make a difference but it turned out to be very hard. They looked at dozens of ESG funds and were not able to find ones they felt were moving and had been successful. There has been some movement now. They will keep looking but it will take a while. They do not want to sell something to create something that is not of the same caliber. Won Yong Kim asked a question about the volatility of the sustainable fund. Hance West says it has been comparable to the other funds. The volatility has been mainly due to the currency difference between Brazil and the United States. It has not been exceptionally one way or the other. Jim Chambers added that Alice and the managers are looking at these things constantly all day, every day to readjust their portfolios for us. Alice said they are trying to solve a problem for Dickinson and will be able to give the college more insight when they hire the analyst. They have to look at the portfolio and they have a lot of research to do. They do not even know what they are searching for yet. They are not in the business to select individual stocks for our portfolio, they select the managers. A lot of time is spent selecting them. Investure looks at: are they ethical, are they good investors, do they have good back office controls. They want to understand the reason behind the way the managers do things. They talk to them but do not tell them what to do.
Mike Fratantuono said it sounds like Investure is going to discover a methodology and position themselves to be an educative organization of the broader good. Alice interjected: how do we think about portfolios in the way to be perceived as not the bad guy; but responsible and not cold-hearted capitalist? Mara Donaldson added this is also the future; it will and needs to be done. Alice said we have to have sustainable investments that are good investments. We are going in the right direction. When they are part of the portfolio and are the best investments out there then you know you win. How you get to winning is not a clear path. No client wants to sacrifice return along the way. How does Dickinson get there? The campus is not united on this. It does not mean you cannot try to do things the right way. It also means you cannot take on a cause and sacrifice other causes just to make this one cause happen. That is the board’s responsibility. Her responsibility is to feed them the information that helps them do their job better. That is what they are committed to. Mara Donaldson said she is a little surprised there are not more investment possibilities within the United States on sustainability issues. Alice said it is easier to find investments in other countries. But they take on a higher risk.
Jim Chambers asked Alice if with their other clients (if she is comfortable talking about it) there are learnings on how those clients are approaching the whole question. Alice said the learning along the way has been to be as transparent as you can be. We want to have the facts out there as compared to passions. We want to help them think about the big picture. Mara Donaldson asked a question about transparency of the presentation. How much can be shared with students who want to be aware of this? Alice said we have confidentiality agreements with the managers and cannot give the names of stocks or the managers. The performance reports are up to Dickinson because they own them. Jim said maybe we should take the step to make a redacted version to be cleared with Investure and the Investment Committee that can be shared. Maybe we can put that version on the website.
Alice addressed a question submitted by Will Kochtitzky prior to the meeting about what fossil fuels have earned in the past by saying it is really all about going forward. We cannot go back and figure out how much fossil fuels have earned in the past. Alice also addressed Will’s question about Orphan assets and if they are bad investments. Alice said if they are not good investments, the managers will not invest in them. Hance added he does not think the Orphan asset scenario will play out and it does not worry him. He feels it will not happen suddenly if it happens. The managers will adapt.
Mike Fratantuono asked about proxy voting. Alice said the managers vote the proxy. They give them an outline of things they think are important in very broad categories. They have said to students at other schools if you have an issue you are really adamant about we can potentially use it as a learning experience. Investure can take it to one of their larger managers and advocate for that position. It is not ineffective, but the problem is you are a small fish in a big pond.
Jim Chambers thanked Alice, Hance and David for being here and educating us.
The following discussion occurred:
Jim asked Margaret (in terms of the Investment Committee) if there
is opportunity for Dickinson to up their investment in the sustainable
fund as Alice mentioned Middlebury is going to. Margaret said the
Investment Committee will be having a meeting tomorrow and that is
probably when we will know more. Jim asked, in terms of Investure in
general, what happens if we say you have to divest in fossil fuel. What
will their reaction be to that? Margaret said she cannot speak for Alice
but she thinks Alice will not be able to do that.
Mara said she thinks the most interesting parts of the presentation are: 1. Investure hires managers to invest the funds, they do not invest themselves. 2. It is all pooled. 3. Following the paper trail to find what they are investing in is very difficult. The information is really buried and a lot of work still needs to be done to trace it. She heard an opportunity for Dickinson perhaps to contribute to understanding what a sustainable investment might be. They have not hired the sustainable investment manager yet. She found those points important in how we might move forward.
Margaret gave some background on Alice. Alice understands the needs of the college and university environment and knows Dickinson’s needs and understands our students. Jim added also her personal commitment shows she wants to find an answer to this. She seems to have a passion for it.
Mara said in thinking about the transparency issue the more
information she has the better she can think about how we can be
responsible moving forward. She thinks we have taken on some things
that do not seem realistic. We have to digest them all and be able to
respond responsibly given other options.
Jim agreed that to push the agenda forward we need to articulate
that for ourselves and the broader community as well. Margaret said
Alice told her she is working on an overall statement or symbol of
methodology that could be appropriate not just for Dickinson, but other
colleges and other managers. Mike said Alice gets to influence a much
broader community as an educator of other fund managers and that is very
powerful. Based on what was said at the last meeting we say Dickinson
is the only college that has apparently taken this task force approach.
There is a strategy in business that says good companies benefit from
demanding clients. And Dickinson can posture itself as a catalytic
client for Investure in this narrative. Mara said this is cutting edge
in terms of what constitutes a sustainable investment. Alice mentioned
the UN principles. That might be a place to start. This is an open ended
thing and this is where the methodologies can help determine what a
sustainable investment might look like. Jim said he thinks at a minimum
the committee can begin to draft and get feedback to Alice. Margaret
asked if the professors would be the ones to take the lead in getting
students together. Mara said we can certainly suggest it to Reinvest
Dickinson and maybe Neil Leary. Margaret wondered if the new young
alumni member of the Investment Committee could be a potential link. Jim
said as Alice formulates her thoughts we can get further into the
involvement of the investment committee and the students. Jim asked Adam
& Justin what are their reactions based on what they have heard
during the last two meetings. Adam said the biggest thing is
transparency. We need to give non-confidential information to the
students so they understand what our position is. This hurdle is
gigantic. Justin, on behalf of Reinvest Dickinson, agreed about
transparency. Being at this meeting has helped him see this more
clearly. Getting the information out would put to rest some of the crazy
theories out there. Jim said one of the student’s roles is to be a
representative to move forward information. This is meant to be a part
of the transparency of the whole process.
Mara brought up that this committee is a board of trustees task force vs. a presidential task force. Jim explained we have been commissioned by the board of trustees by a resolution to address the action items on the work plan. Mara asked if there has previously been a task force commissioned by the board of trustees. Jim said the board of trustees commissioned the presidential search committee. Mara said it had always been introduced as a presidential task force and maybe there is no distinction here. Jim said in that case you would not have the president driving their success. That is the responsibility of the trustees; as is the fiscal health of the college. Those are primary responsibilities of the trustees and why this came from there. In terms of what that means to the construct he said the trustees defaulted to the administrative way of doing things by having an open committee representative of all areas of the college. The task force will take its recommendation to the Investment Committee who will then take it to the board of trustees. Mara feels this should be stated on the website along with the time table. Jim said we can put both resolutions up on the website, minutes of the meetings, the work plan, the presentations we have had. We need a version of the Investure presentation to post…what we can post.
Jim indicated we have confirmed the meeting on August 27 to cover #6, 7 & 8 on the work plan. Mike said he thinks he has two alumni willing to be panelists on August 27. He asked what types of questions the task force thinks will be beneficial to pose to the panelists. Margaret suggested the supply chain. What is the industry relationship and how many other industries are impacted? Jim agreed he thinks the supply chain is a good one. What happens if something happens to the fossil fuel industry in two years’ time? The original charge from the Investment Committee is to investigate the likely impacts of divestment on the fossil field industry as well as the role which fossil fuels play in the economy. Divestment…what happens then? Do they raise prices, lower prices, increase demand, lower demand? What are the factors economically? Mike said he will put together a list of questions and ask people to weigh in on what they want to hear at the next meeting. Jim agreed that is a good approach.
Adam said another possibility for the next meeting is to define ethical investment. That will give us a better feel for what is really happening. Mara said there are clearly defined positions that drive institutions and it is clear that when you read the materials we have been given about Dickinson the ethical positions of investing are to maximize profits and minimize harm, a classical utilitarian position. It would be institutionally foolish for the institution to make decisions that would reduce options for Dickinson. Thinking through the ethical values that we want gets kind of tricky, we aren’t weighing the values. Margaret added we are a global institution and there are cultural principles. Mara said it is complicated but not wishy-washy.
Jim went over the calendar and noted the meetings he proposes are: August 27, September 24 & 27, October 8 & 29 (maybe check the 24th when the trustees are here), November 12 & 26. The committee members present agreed. Jim moved to the community conversation meeting that needs to be scheduled and asked for someone to work on that. Adam volunteered to work on it with Jim and Steve. The goal is to bring forward what we have learned and share it with the community. Jim asked a committee member to share meeting information with those members not in attendance today. Mara will give to Neil Leary and Justin will give to Will Kochtitzky.
Jim reviewed with the committee what was covered in the meeting today. The basic talking points are:
- We have continued our education around the endowment and how it works.
- We had our outside speaker, Alice Handy from Investure, who educated us on how the endowment is constructed and invested. And, also about how the endowment is currently working towards better understanding of fossil fuel and sustainable investments.
- Discussed task force website.
- Worked on future meeting planning.
Jim requested an email from each committee member answering the following questions. He also requested everyone send their email to all committee members to stimulate conversation.
- Do you have any outstanding questions for people who have already presented?
- Are we on track to achieve our goal?
Adam asked if the committee has a mission statement. Steve said he will send the resolution approved by the board and the student senate resolution to the members of the committee.
There being no further business before the task force, the meeting was adjourned at 3:25 PM.
Respectfully submitted,
Vicki Rotz