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The Scarlet & Black

The $1.5 billion question: endowment at center of discussion

By Emma Sinai-Yunker

The endowment has played a starring role in discussions of possible changes to the College’s admissions and financial aid policies. The administration says that the more than 50 percent of the College’s operating budget that comes from the endowment has to be decreased to ensure sustainability. Some students and alumni question why, with an endowment between $1.4 and $1.5 billion, the College needs to change its aid policies at all.

The man in charge of investing the endowment, Chief Investment Officer Dave Clay, points to the volatility of returns as one issue to consider.

“Ever since the crisis in late 2008, the returns have been much more volatile,” Clay said. “It was a tough period. There were meaningful declines since 2008. It has been really volatile and I think we can attribute that to the fact that the world still hasn’t, if you will, completely healed all of the things that happened. Unemployment is still high, economic growth is still low, there’s lots of uncertainty around those issues.”

Chief Investment Officer Dave Clay crunches numbers. Photo by Emma Sinai-Yunker

In 2010, the investment return was 13 percent, and the following year, that increased to 23 percent. However, this past year, there was a negative return of 3.9 percent, showing how uncertain the investment returns can be.

“There are a range of fiscal and monetary reasons that growth is just slower,” Clay said. “Whenever there is uncertainty about how that’s going to be solved, especially with unemployment high, there’s going to be lots of variability in the market.”

The College invests the endowment in a diversified spectrum of funds, including cash and fixed income, equity and stocks, and what are broadly defined as alternatives, which are private investments.

The endowment was built in two ways. One was gifts, which may have been given up to 150 years ago, the other is board or College funded allocations to the endowment in order to save for the future. Gifts, and their growth over time, account for around 30 percent of the endowment. About 70 percent is board-designated savings of things that weren’t restricted for the endowment and the growth of those through investment. About 10 percent of the endowment goes into fixed income, 40-45 percent goes into equity, and 45-50 percent is in the alternatives and other categories.

The endowment portfolio needs to produce about $5 million of cash a month to keep the College running.

“We always learn from the environments we go through, but we’ve always been very focused on delivering that support for the College. The endowment provides the biggest source of support for the College: over half,” Clay said. “We’ve always had, and this predates the crisis, a really liquidity-focused allocation for the investments we select, because we believe the most important thing is that we have enough liquidity to run the College. That was one part we did get right during the crisis. We didn’t have to make some of the short-term difficult choices some other well-endowed places did.”

Returns from investing the endowment connect to how well the College can meet student financial need. The grant scholarship budget is more than $40 million, and is the biggest provider of resources to support meeting need.

“The resources to meet need-blind are a meaningful allocation. Certainly the two [investment and need-blind] are related,” Clay said. “I think that is one of the challenges, is the endowment has done a lot to allow us to sustain those. I’ve been here more than 25 years and when I came, the endowment supported about 30 to 35 percent of the College’s operating budget. Now, it supports over 50 percent. More students receive a grant from scholarship than they did when I started. How much can the endowment carry and what do you worry about? I know that when more than half of the support comes from one place, people start to worry.”

In the 1980s, the object of the College’s investments were a particularly controversial topic, with students protested in an attempt to get the College to divest from companies doing business with the apartheid government in South Africa. Grinnell, under President George Drake, did partially divest from South Africa.

The College’s investment policy statement tries to adhere to Grinnell’s core values when investing and makes sure to find managers for investments that follow those ideas and values. It states, “The Investment Committee recognizes the importance of socially-responsible decisions to the long-term financial performance of business enterprises, and it selects investments and investment managers whose conduct is consistent with the core values of the College.”

The SGA Endowment Committee, previously known as Students for Socially Responsible Investing, often reviews the College’s list of investments and suggests changes so that the endowment is spent in a way that adheres as closely as possible to what the student body considers fundamental to the way Grinnell invests its money. Although they have not met with the investment staff this past year, there is a screening process that every company or other investment must go through to make sure those values are met.

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