Barnard’s financial returns have surpassed the benchmarks of peer institutions and other schools with small endowments, and it may be thanks to the college’s partnership with an external investing company that pools together the endowments of ten organizations.
Returns for the fiscal year, which ended June 30, were 20.2 percent, compared to a benchmark of 19.1 percent for other small, liberal arts colleges, according to Chief Operating Officer Gregory Brown. Over a five-year period that included the recession of 2008-09, Barnard’s overall return was 7.4 percent, better than the average of 6.0 percent.
“Relative to the benchmark of peer institutions, we do slightly better than they do when the market is up and lose less than they do when the market is down,” Brown said.
An outside firm
Unlike Columbia, which manages its investments internally, Barnard outsources its investment office to Investure, a firm that provides mid-sized non-profit organizations with investment expertise. The school has been working with Investure since 2006.
Barnard does not have a chief investment officer. Instead, the school is part of a consortium of six schools—including Smith College, Middlebury College, and Dickinson College—and four foundations that pool their investments and participate in the same group of funds, eliminating the need for in-house endowment management, a move that Brown says saves money and reduces risks.
“It allows you to be part of a bigger group and not to have people on staff who manage the endowment—it’s a very expensive thing,” Barnard President Debora Spar told Spectator last month.
Investure manages $6.5 billion for the 10 organizations, a number that rivals Columbia’s $7.8 billion endowment. Alice Handley, who was not available for comment, started Investure in 2003 after managing the University of Virginia’s endowment for 29 years.
Barnard has made significant gains in recent years. The endowment was approximately $175 million when Barnard hired Investure in 2006—now, it stands at $215 million, even taking into account the market crash.
Brown said that Barnard outsources the management of its endowment “to maximize returns and to provide stability in the management of its funds.”
Columbia’s endowment is managed by 18 analysts and managers who comprise the Columbia Investment Management Company.
“Investment professionals are among the most highly compensated employees at universities and colleges with in-house investment staffs,” Brown said. “Assuming that we would need to hire sufficient staff to manage the endowment, we are saving at least $2 million per year by working with Investure.”
Last year, Barnard paid the firm a fee equivalent to 0.7 percent of the market value of its endowment, according to Brown.
Working with this larger group makes the returns on Barnard’s investments proportionally bigger than if the school were to invest independently, Madalena Provo, BC ’12, and senior representative to the Board of Trustees, said.
“Ironically and, you know, differently from how one might expect it, [it] allows us to make more of a statement because we’re grouping our funds with other institutions that have even more money,” Provo said.
“The strategy for us is simple—the college and its trustees determine asset allocation and spending rules, and we monitor all of what Investure does to follow these directives,” Brown said. “In finding the right partner, we made sure that the outsourced partner shares our values, investment objectives, and risk tolerance.”
Provo stressed that while Investure recommends a plan, “Barnard still has the option of dictating within that situation if there are companies which we want to avoid or which we are more interested in.” For example, women are at the partner level or senior level position in 59 percent of the companies in which Barnard invests. She added that Barnard also prioritizes investments in companies that are environmentally-friendly.
Experts weigh in
Economics professors at Barnard said that, for schools with small endowments, outsourcing is a strategic move.
“A key issue in these matters is the cost of investment management,” Barnard economics professor Perry Mehrling said in an email. “For small endowments, outsourcing makes good economic sense.”
Barnard economics professor Marcellus Andrews wrote in an email, “While a university with an enormous endowment can become its own hedge fund … it makes little sense for a smaller college with a smallish endowment like Barnard to manage its own endowment, especially in an extremely risky environment like contemporary capital markets.”
But Barnard economics professor Rajiv Sethi cautioned that the school’s gains may not necessarily be attributed to its arrangement with Investure.
“It could be good management (higher returns for a given level of risk) or greater risk exposure (riskier assets tend to have higher returns on average) or it could be just good luck,” Sethi said in an email.
According to Brown, the biggest issue for smaller institutions is staffing. Investure provides the school with professional investment managers and support for complicated transactions.
Barnard’s endowment is made up of roughly 800 individual funds for various purposes, including donor-restricted endowment funds and quasi-endowments, which are other funds selected by Barnard administrators to function like endowments.
The school’s endowment spending policy seeks to achieve an average 5 percent spending rate over time. Annual spending from the endowment, that is, money that Barnard can use from the endowment, is set at 5 percent of the rolling three-year average of the endowment’s market value as of Dec. 31 of the previous year.
Brown said that Barnard will continue to work with Investure.
“Barnard oversees Investure’s management of the endowment, and we have no plans to try to create an investment office of our own on campus,” he said. “Working with Investure has been an entirely positive experience and a tremendous help to us.”
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