Bowdoin’s endowment generated an investment return of -1.4 percent in fiscal year (FY) 2016, a marked drop from last year’s 14.4 percent increase. According to Cambridge Associates, a firm that tracks endowment performance across the country, Bowdoin’s return remains in the top quartile of its peer institutions despite the drop.
This year’s result marks the first negative return the College has seen since 2009, when the value of the endowment decreased 17 percent. In the period from 2009 to 2015, however, the endowment nearly doubled, increasing from $689 billion to $1.393 billion. As of June 30, 2016, the endowment was valued at $1.340 billion—a loss of approximately $53 million from last year.
American colleges and universities saw a mean return of -2.9 percent this fiscal year, according to Cambridge Associates. Other NESCAC schools also experienced negative returns, with Middlebury College reporting a 4.5 percent loss and Trinity College experiencing a drop of 5.4 percent.
Despite the year’s challenging market conditions, Bowdoin’s negative return does not concern President Clayton Rose or Senior Vice President for Investments Paula Volent.
Volent identified overvaluation of the private equity market, record-low interest rates and oil prices as factors that contributed to the poor market conditions and impacted the performance of the College’s investment portfolio.
“I think that it’s disappointing that its negative. On the absolute level, I’m disappointed; on a relative level, we did very well,” said Volent.
According to Rose, the College’s performance in relation to its peers is a testament to Volent and the investment team’s ability to navigate tough market conditions.
“The thing to keep in mind is we are long-term investors—so we’ve outperformed in the short medium and long term in remarkably great ways,” he said.
Although it is revisited every year, investment policy is based on long-term strategy that focuses on five and 10-year returns. While Volent expects the endowment to be more liquid in the coming years due to market conditions, she does not expect a one-year downturn to radically change the College’s investment strategy. She also noted that the overall stock market outlook would likely make it difficult for Bowdoin to achieve high returns over the next few years.
“One year is not an investment track record; it’s more the 10-year number we look to,” said Volent. “I think that it’s going to be difficult to find absolute returns going forward in the three to five year period, just because interest rates can’t go lower. Stocks and bonds have been correlated, so it’s hard out there,” she said.
The investment team now hopes to prevent further portfolio losses, but will continue to watch the markets for pockets of potential return.
The endowment portfolio is diversified across various asset classes, which include private equity, real estate and domestic and international equities, among others.
“We’re participating in things like drones and genomics, which is really exciting,” Volent said.
Both Rose and Volent declined to comment on the distribution of the portfolio across investments due to disclosure agreements with asset managers.
Approximately 46 percent of the endowment is designated to supporting student financial aid, making its growth crucial in maintaining Bowdoin’s accessibility to all students. In FY2015, the endowment contributed $50 million to the College’s annual operations, approximately $22.7 million of which went to financial aid.
“The goal of the endowment is to generate the absolute best risk-adjusted returns for the College, so that we can invest in our ambitions and aspirations and educate and train our students and provide our faculty with the resources to do their work,” said Rose.
Rose does not expect this year’s results to noticeably affect the student experience unless there is a prolonged period of downturn in the market—a situation that would force the College to make difficult decisions regarding its ambitions.
Rose said the College will continue to be more disciplined about the rate of increase of the budget given current market conditions—a process that the investment team implemented proactively during FY2015.
“Beginning in about a year, we’ll start to see the distributions from the endowment that go to cover operating costs of the college increase at a lower [rate],” said Rose. “One of the things that a disciplined budget process can do is, even in the face of some of the challenges we have, allow us to find the resources to invest in our ambitions and aspirations, and I hope that’s what we will do.”