Nearly every element of the student experience at Colorado College, from the classroom to the construction of the new library, can be traced back to the $688,377,000 endowment that has been growing since the school’s inception in 1874. The endowment forms the financial bedrock upon which CC is built. Stacy Lutz Davidson, Assistant Vice President of Finance, said, “with the endowment, we need to provide the same amount of money to students at the college today as a student in 100 years.”
This timescale is the essential guiding principle that directs the Board of Trustees in their mission to continue to cultivate the school’s endowment. Endowments across the country at big-name higher education institutions, such as Harvard and Yale, can push into the billions of dollars. CC is on par with its peer institutions such as Carleton, Grinnell, Vassar, and Wesleyan, who all fall in the $700 million to $900 million range.
As CC aims to enter the echelons of elite liberal arts institutions in the country the endowment will be a critical resource for the administration to use to fund scholarships, building projects, and the everyday educational expenses of the school. Every year, the CC administration pulls from the endowment to cover about 17 percent of the school’s total operating budget. How will this critical financial asset continue to grow and which entities are handling this college resource?
I. Who is investing the endowment?
As outlined in the college bylaws, The Board of Trustees holds primary fiduciary responsibility for investing the college’s endowment. Early in Dick Celeste’s presidency in the mid-2000s, the college had about 90 percent of the endowment invested with J.W. Bristol & Co., a New York-based investment firm that specializes in handling college endowments.
In 2006, former president Celeste, under the advice of nationally renowned college endowment investment guru David Swensen, brought the board a plan to diversify its assets instead of investing so heavily with Bristol. The board approved the plan upon meeting with Bristol.
Swensen, who manages Yale’s $25.4 billion endowment, has pioneered college endowment investment strategies across the country. The New York Times reported in November that Swensen and his protégés oversee over $100 billion in endowment money.
With diversification in mind, the board turned to Monticello and Associates, a Denver-based asset management consulting firm, to find new investment opportunities. Lutz Davidson said, “Monticello is hired by the trustees to provide investment guidance and opportunities. It’s crucial to note that the trustees are the fiduciaries.” From 2006-09 the Board of Trustees shifted to a diversified investment strategy that resulted in 70 percent of the endowment being invested with about two-dozen managers that Monticello brought to the board as viable investment opportunities.
This diversification push came at a critical juncture preceding the 2008-9 economic crash. When the subprime mortgage crisis hit the financial markets, the S&P dropped almost 40 percent. According to Lutz Davidson, the big players in the college endowment field were hit with drops in the endowment ranging from 25 to 30 percent.
These hard-hit endowments included Swensen’s Yale endowment, which was invested heavily in real estate holdings. Due to CC’s diversified portfolio, the endowment took a comparatively small 15 percent drop. The board’s diversification push continues to be CC’s approach to investing, as the college now has 29 different managers who invest the endowment in 40 different funds.
II. Where are investors putting CC’s money?
The investment managers that Monticello brought to the board range from hard-charging quant traders such as DE Shaw, to distressed debt investing firms, all the way to what some perceive as more socially responsible investors such as Tom Steier at Farallon Capital. The two-dozen investment managers that Monticello has connected the board with are chosen based on a mixture of quantitative analysis of returns paired with more qualitative measures. “For example, at this past meeting we looked at a couple new managers and the conversation was about style, what the investment manager does and how that will create synergies in the portfolio. It’s more about who the company is, if its managers we appreciate,” said Lutz Davidson.
It is much more difficult, if not impossible, to gain a concrete hold on where the two-dozen managers are investing 70 percent of the college’s endowment outside of generalized areas. With Bristol, however, it is entirely transparent as to where the endowment is being invested. As of November of this year, Bristol managed $241 million of the college’s endowment.
Of this $241 million, $12 million was invested in categories defined by the company as “energy.” Contained within this category are the oft-cited oil and gas companies that student divestment movements have targeted. More specifically, Bristol invested in companies including McDonald’s, Monsanto, Amazon, Comcast, Pepsi, and Johnson & Johnson.
A full list of the 70 companies that Bristol invests with is available at the Tutt Circulation Desk. The copy available at Tutt is current as of June 2016, but Lutz Davidson said that if there was student interest the copy could be updated with the most recent investing information from Bristol
Student movements pushing for divestment from the college have gained and lost popularity over the past five years. No concrete changes have arisen from these movements in how the board handles the college’s endowment. How does the board view divestment and how likely is it that the board will start to divest from what some deem as “socially irresponsible” investments, such as fossil fuels?
III. What is “responsible investing” and how likely is the Board to use this strategy?
As it stands currently, the board has no screens set up to direct Bristol or Monticello in their investment strategies. It is possible that the board could direct Bristol to avoid investing in fossil fuel companies or direct Monticello to only bring to the board opportunities that fall within the guidelines of Socially Responsible Investing.
SRI, as it is known, involves avoiding harmful companies and seeking out socially responsible companies. Industries that SRI dictates avoiding, for example, are the gambling and tobacco industries, as companies in this sector are often times profiting from people’s addiction. Socially responsible investments could range from renewable resource companies to companies with long track records of positive community engagement and philanthropy.
For President Jill Tiefenthaler, the continued growth of the endowment is the bottom line to consider in a conversation about divestment and socially responsible investing. “[The endowment] not only provides a scholarship today but it’s invested so it can provide a scholarship for every student now through 100 years from now. That means that you have to do pretty good investment-wise to be able to raise that value.”
How well does the endowment have to do exactly? The figure comes to about eight percent annual growth. The figure consists of a five percent payout each year to fund scholarships, professorships, and academic services paired with about three percent to account for inflation. In 2016, the endowment payout is estimated to amount to $28 million.
Lutz Davidson said, “Every time we meet with the Board of Trustees, we have socially responsible investing opportunities outlined, and we have looked at a variety of opportunities in that sector before.” According to Lutz Davidson, the difficulty arises out of an inability to find investment managers who adhere to the SRI that can provide the same quality of returns.
“That’s where the conundrum is, because how do you take away a manager that does something very specific if there is not an SRI manager that does a similar thing,” said Lutz Davidson. Successful investment managers such as DE Shaw do not adhere to the SRI and are returning profits as high as 15 percent for the endowment.
While Bristol is investing the endowment in companies such as Monsanto that are regarded with general disdain from the student body, Lutz Davidson said, “It would be nice to balance that conversation with what we all see as a pretty stand-up company, like Berkshire Hathaway, for example.”
IV. Where does Colorado College go from here?
On a basic level, the endowment will continue to be drawn from each year to subsidize the cost of a CC education. The college’s operating budget in the fiscal year of 2017 comes to $169.9 million. By dividing this by the number of students at CC you arrive at the per student cost of attendance: $82,636. With the cost of tuition in 2017 set at $50,892, the endowment payout will help cover the approximately $30,000 gap between the cost of attendance and tuition. Every student is affected by the endowment.
As far as a responsible investing approach goes, a shift in investment policy will be dependent on projected returns from SRI-adherent companies. Lutz Davidson guaranteed that within 10 years there would be viable, socially responsible investing opportunities to take advantage. However, for the time being, “if you wanted to go out there and find companies that fall in line with your SRI ethics, you just couldn’t find companies that could replace what we have in our portfolio in the same way.”
Tiefenthaler, Davidson, and Robert Moore, Senior Vice President for Finance, cite “intergenerational equity” as a guiding principle of how the Board of Trustees will make decisions in the coming years. As a whole, the trustees are making decisions in 2016 that will ensure the prosperity and continued growth of the endowment for CC students that attend the school in the next decade and for decades to come. Tiefenthaler said, “I think the conversation will continue. I think it’s a good one. I think the trustees have been open to it and interested in learning and I think students learn a lot from the conversations too.”