St. John’s earned an average of 12.2 percent return on its $265 million endowment fund for 2005 fiscal year, well below the average of 15.1 percent universities and colleges across the nation have earned, according to the National Association of College and University Business Officers. The organization conducts an annual survey on university endowments.
Institutions such as Yale posted interest rates as high as 19 percent for 2005, a return that has considerably outperformed the market as a whole. Such high returns have left universities such as St. John’s quickly trying to model the investment innovations modeled by David Swenson, chief investment officer of the Yale endowment.
The St. John’s endowment helps pay for scholarships, operating costs, and professor’s salaries.
St. John’s typically spends an average of five percent of the total endowment each year, which is what most universities spend.
“Spending a steady percentage of money from the endowment allows us to ride out the peaks and valleys that often take place within investment,” said Anne Marie Schettini-Lynch, assistant vice president and associate treasurer.
Portfolio diversity is likely the primary reason for these planned shifts in funds, said John Griswold, executive director of the Commonfund Institute, the educational arm of a group that provides fund management and investment advice to many universities. Griswold told the Yale Herald that the large endowment Yale enjoys makes it easier to invest in more diverse and better-performing long-term asset pools.
“They are more ready to take on new asset classes and new risk – as long as those asset classes are not particularly highly correlated to their current mix,” Griswold told the Herald. “Large endowments have long since moved to much more diversified endowments, and smaller endowments are just now starting to catch up.”
While St. John’s has a lower return on its endowment fund compared to universities such as Yale and Harvard, St. John’s has less of a pool of investment money, which hampers its ability to diversify.
“Our asset allocation won’t change from year to year dramatically,” Schettini-Lynch said. “This is about long term investing.”
St. John’s has an asset allocation policy which provides guidelines for choosing which money managers to hire, which ones to terminate, and general rules to avoid making unwise investments.
“The asset allocation policy gives us a model to follow when investing,” Schettini-Lynch said. “There are not 100 percent equities. It focuses on a diversified portfolio in order to reduce risk.”
One of the primary reasons for the larger endowment funds of other institutions is the large amount of donations the other schools receive. Swenson, while generating billions for Yale, still had billions to work with when he first came to the job in the ’80s.
According to Schettini-Lynch, universities such as Yale, which has approximately $16 billion dollars within its endowment, have another advantage over universities such as St. John’s. According to NACUBO, it is not cost effective for universities with under a billion dollars in their endowment to have a team of investors that work strictly for the university. Yale and Harvard can afford to have their own private investment team instead of hiring out money managers from investment firms.
Money managers for St. John’s are overseen by an investment board and a private consultant that works for the University. The investment board is compromised of members of the Board of Trustees for St. John’s, which includes the Rev. Donald J. Harrington, C.M., president of St. John’s, various Wall Street executives, and other members of the board.
St. John’s has a social policy that is also utilized when investment decisions are made, however it is kept confidential. Schettini-Lynch said that there are difficulties in trying to find socially responsible companies and turning a profit at the same time. For a university such as St. John’s, which follows a Vincentian code of ethics, the problem of upholding social responsibility while keeping the University’s endowment fund profitable is a tough balance to maintain.
“It’s not an easy situation,” Schettini-Lynch said.
“Everyone is struggling with these kinds of questions. There are companies out there that have socially responsible hedge funds.”
Over the past two decades, universities across the nation have invested more and more money in private equity-investments in companies that do not list their stock on a public exchanges. Because private equity can be invested secretly, faculty members and students at universities have less information about where the money from their school is being invested.
Controversy has arisen over the morally questionable nature of some of the investments that have been made by universities such as Yale, with investments in companies such as Farallon Capital Management L.L.C., a hedge fund that has billions of dollars invested in companies such as Halliburton, a company that has been accused of war-profiteering in Iraq.
Swenson has fended off accusations by Yale students, faculty and alumni who have asked him to be more transparent with Yale’s endowment. However, Swenson has maintained secrecy, and has refused to withdraw from many controversial investments.
While St. John’s has shown just about as much transparency as Yale has with its investment fund, Schettini-Lynch said there are other reasons for major universities to keep their investments a secret.
According to Schettini-Lynch, universities and pension fund managers are reluctant to disclose the companies they are involved in because sensational Wall Street company collapses often make the people who invested in them look bad.
“There were all different universities invested in it,” Schettini-Lynch said, “but nobody wants to see their name in the newspaper related to something like that.”
