COLLEGE AND LIBRARY ENDOWMENT AND SIMILAR FUNDS
The Amherst College endowment achieved a second consecutive year of double-digit performance, returning 10.1 percent for the ﬁscal year ending June 30, 2018 (FY18). The return, coupled with gift receipts, helped to again push the Endowment to an all-time FY historical high value of $2.378 billion (compared to $2.248 billion on June 30, 2017—an increase of $130 million). Gifts of $9 million also contributed to the College’s Endowment for the year. The Endowment’s support of the Operating Budget remains substantial, totaling 52 percent for the FY. Together with the recently announced Promise campaign, the Endowment is positioned to continue to provide vital ﬁnancing to advance the College’s strategic initiatives, including attracting the most talented faculty and most promising students regardless of their ﬁnancial need.
The Folger Shakespeare Memorial Library’s Endowment Fund increased from $334.0 million to $352.9 million during FY18. Funds managed by the trustees under life-income agreements totaled $83.7 million as of June 30, 2018, showing a net increase of $1.9 million from the prior year
FISCAL YEAR 2018 MARKETS AND RETURNS
Equity markets remained positive during FY18, albeit with an uptick in market volatility, especially in the second half of the FY. Increased trade tensions, coupled with a continued trend toward political populism, have made investors increasingly wary of growth prospects, despite continued strong corporate earnings (fueled by the recent tax reforms within the U.S.). Among developed equity markets, the U.S. led in performance, with the S&P 500 Index returning 14.4 percent over the FY. The MSCI World Index also produced double-digit performance, gaining 11.1 percent over the same period. While positive, Emerging Markets equities trailed developed markets, with the MSCI Emerging Markets Index returning 8.2 percent. China continues to be a major driver within Emerging Markets, as evidenced by the MSCI China Index return of 21.2 percent for the FY.
U.S. Bond markets remained out of favor during FY18, as investors saw the Fed raise interest rates three times. The Bloomberg Barclays U.S. Aggregate Bond Index dropped 40 basis points for the FY, while the 10-Year U.S. Treasury fell 2.7 percent. Global Bond markets fared slightly better, with the JP Morgan Global Broad Bond Index climbing 1.8 percent for the FY. Commodity markets rebounded sharply during FY18, as the S&P GSCI Index increased 30.0 percent, driven in large part from a jump in oil prices to over $74/barrel at FY end, an increase of 57 percent for the period.
The College’s 10.1 percent return for the FY was ahead of the strategic policy benchmark, which rose 8.6 percent for the period. The College’s return also outperformed the 60 percent S&P 500 Index/40 percent Bloomberg Barclays U.S. Aggregate Bond Index blended return of 8.3 percent. The College’s FY18 return will likely rank just below the top quartile of the Cambridge Associates performance universe for college and university endowments, once ﬁnal results are released.
The College’s longer-term returns versus various indices are summarized below While recent individual-year performance tends to generate headlines in the media, Amherst College’s Investment Committee, along with Oﬃce of Investments staﬀ, are more concerned with achieving long-term investment success. The 10.4 percent annualized return over the past 20 years has been generated with roughly 40 percent less volatility than the S&P 500 Index and the MSCI All Country World Index (MSCI ACWI).
Given the College’s signiﬁcant reliance on the Endowment to support operations, a focus on strong risk-adjusted returns is essential. Additionally, the investment team is focused on capital preservation—or, said diﬀerently, “winning by not losing”—by investing in a globally diversiﬁed portfolio of high-conviction investment strategies. Importantly, this global structure and strategy have allowed the College to preserve capital in down equity market environments. Over the past 20 years there have been six periods when the U.S. Equity markets have been down more than 10 percent, and in all of those periods the College signiﬁcantly outperformed on a relative basis.
POLICY PORTFOLIO AND INVESTMENT STRATEGY
The strategic policy portfolio continues to span ﬁve broad asset categories: Global Equities, Absolute Return, Real Assets, Fixed Income and Cash. The Investment Committee and Oﬃce of Investments staﬀ regularly review the expectations upon which the strategic policy portfolio is based—with the goal of constantly improving the portfolio’s risk and return characteristics. No speciﬁc changes were made to policy targets during FY18. As a result of a combination of rebalancing across managers and new additions to the portfolio, as well as market performance, the College’s allocation to Global Equities increased to 64 percent of the portfolio, up from 60 percent at FY17. Performance from Private Investments, notably Venture Capital, was particularly strong during FY18.
The Real Asset portfolio remains somewhat under the strategic target, as the Investment Committee and staﬀ continue to look for compelling opportunities, particularly within the renewable energy and infrastructure sectors.
The Oﬃce of Investments continues to engage with its investment managers to incorporate consistent and thoughtful environmental considerations into their investment processes. The College’s investment managers are acutely aware that sustainability is a key diligence criterion for Amherst College and many other mission-based institutions. They are also aware of how important sustainable investing principles are to their continued ability to attract investment dollars. The majority of managers aﬃrmatively indicated that they take these risks into consideration when evaluating prospective investments. In addition, the College continues to proactively evaluate and vote for its shareholder proxies in alignment with ESG (Environmental, Social and Governance) principles, advocating for corporate accountability with respect to social, ethical, environmental and governance issues. The Oﬃce of Investments has partnered with Ceres, a nonproﬁt organization that advocates for sustainability leadership. Through membership in Ceres’ Investor Network on Climate Risk, Amherst College is able to advocate for, and participate in, numerous initiatives on environmental sustainability and eﬀorts that will lead to a reduction in greenhouse gas emissions. In addition, the Amherst investment staﬀ and Investment Committee continue to reshape and redirect the College’s investments into a broad array of sustainable natural resources; this eﬀort includes investments in all energy sectors—renewables (wind, solar, geothermal), storage, energy eﬃciency technology and energy infrastructure—as well as sustainable timber, minerals and agriculture. The Oﬃce of Investments embraces an “active engagement” approach by making our views known to current and prospective investment managers and by aggressively seeking to participate in collective eﬀorts to inﬂuence action to address the real and acute problem of climate change.
It seems as though we are reminded on a nearly daily basis just how extended the current equity market recovery has been. We are now oﬃcially in the longest bull market in the history of the United States—a bull market dating back to March 9, 2009. Prognosticators and speculators are constantly trying to identify the top of the market, with many doing so multiple times over the past six or seven years. One of the great advantages for the Amherst College Endowment is that it is a pool of capital that can be managed with a truly long-term vision; in eﬀect, the Endowment is managed in perpetuity. Individual investors do not have that luxury, and thus often become entranced with near-term results. While short-term success is relevant, the focus on long-term results is what allows the College to invest with some of the best and brightest professionals in the industry. The ability to be strong partners and invest through market cycles with these investment managers has been one of the key drivers of long-term success for the College.
As we begin 2019, both the Investment Committee and the Oﬃce of Investments staﬀ recognize that volatility is bound to increase, and eventually equity markets will stall. However, we also realize that trying to predict the “when” and the “where” for these occurrences is a recipe for failure. Instead, we maintain a long-term focus, intent to invest with best-in-class managers across a diversiﬁed mix of strategies. As the College embarks on the Promise campaign, both the Investment Committee and the staﬀ are grateful for the tremendous support of the Amherst community.
Chief Investment Officer