It’s been 18 months since Brooke Jones was named ÀÏÍõÂÛ̳’s Chief Investment Officer. In the below Q&A, Jones talks about building the College’s Investment Office, the opportunities provided by having an in-house team, and what it all means for ÀÏÍõÂÛ̳ moving forward.
Thanks for taking a few minutes to talk. What have you been up to?
The Investment Office was established during COVID, which presented no small amount of challenge. I expected we might encounter a market correction early on in our investing lives and felt a keen sense of urgency to re-underwrite our portfolio of managers as quickly as we could. I and the team have been doing just that—focusing on what we own, why, and whether each relationship fits ÀÏÍõÂÛ̳’s high underwriting bar and our values system as well.
In addition to the actual asset management the team has had to move very quickly to build out an entirely new department and capability for the College. In the first 18 months, I’ve hired three senior team members (which is only half of our end-state staffing levels), and together with this small team we have found and built out new office space, selected and implemented two enterprise systems, established our governance structure and investment philosophy and processes, established the HR processes and procedures that are unique to an investment staff, and repositioned the portfolio to improve its alpha content. We could not have done so much in so little time if our College colleagues had not been so incredibly supportive. We have all felt so welcomed into the community and supported.
How does having an in-house investment office differ from what the College had in the past?
Previously, the College’s endowment was managed by a third-party consultant that specialized in nonprofit money management. They advised the Board of Trustees, and specifically the Investment Subcommittee, on how assets should be allocated and recommended the investment managers with whom the College partners. These investment managers in turn were picking the particular securities.
As an in-house team, the science of what we do is very standard across the asset management industry. We use a lot of the same best-in-class tools as that consultant did. But investment management is not just a science, it is an art. The big difference for our in-house team is how we select managers—how we find them, how we diligence them, and which we ultimately believe are worthy partners for the College. Because we get to build a direct relationship with these managers, we can also create a different kind of relationship that is more aligned. And the best managers do prefer to work directly with their clients, rather than working through a consultant. This means the in-house office can be much more selective about with whom we work to both achieve the best financial return and to make sure those managers and investments align with our institutional values.
Can you talk some more about that?
There are investment managers out there who are differentiated. They have a competitive advantage, often in terms of the strategies they run, the superiority of their processes, and the quality of their research and decision-making. These factors mean that while most investment managers do not outperform the market over the long-term, some exceptional managers do. For a whole host of reasons, these managers want to work with their non-profit investors on a more personal level. They, too, want to understand with whom they are partnered and the social causes that their investment returns produce. It’s a marriage: we choose them, but they also choose us. As an in-house team, we provide the opportunity. Under the previous model, the College was working with around 100 managers at any given time, few of whom really knew us. Our hope is to get that number down to more like 30 to 40 across our portfolio and to have better long-term returns and more aligned and strategic partnerships with our investment managers, who will care about ÀÏÍõÂÛ̳ in a deeper way.
What does that change mean in terms of the ability to take ESG (environmental, social, and governance) factors into account when working with managers?
We’re applying that same best-in-class criteria when we evaluate our investment managers’ ESG practices. We want to make sure the managers we work with share our core values and that they’ve been ethical and responsible in terms of both their investment decisions and their business practices.
We look beyond the manager's specific investment decision-making to understand the manager’s business practices; for example: how it hires and retains talent, how it promotes from within, how it adjudicates difficult decisions around its private partnership, and who the key principals are as people. This evaluation process is how we learn about an investment manager's approach to DEAIR values and assess alignment with the College.
At the end of the day, the Investment Office is looking for long-term partners. We are extending the College’s capital and its patience and duration to a third party, and they, in turn, are aiming to support our mission through both the compounding of capital and an alignment with our organization.
To wrap things up, can you talk about what ÀÏÍõÂÛ̳'s endowment is able to fund and what are some of the constraints on how it's used?
I’ll state the obvious first. Every dollar the endowment makes goes to support the College’s operations, and is the largest and, importantly, only sustainable source of revenues to support the College. There are some restrictions that come from donors—i.e. certain funds that are used only for maintaining a building, or supporting a professor’s chair, or supporting need-based financial aid, or funding an entire academic program or student life supportive infrastructure. But really the draw from the endowment can be found in everything the College is doing and everything we aspire to do will be highly dependent upon whether the endowment can grow at a rate faster than the cost of educational inflation.
The biggest restriction, though, is our need to protect intergenerational equity. We cannot overspend the endowment today in such a way that would preclude the endowment from supporting the College at the same levels or greater in the future.
Last year, the endowment provided over $48 million toward the College’s operating budget and it will provide over $51 million toward this coming fiscal year’s budget. Our team aspires to grow that level of support and is energized and deeply motivated to do so!