I read with interest the opinion piece by Ethan Brady, “The State of the Endowment,” and I feel it’s important to address some of what Ethan discussed in his piece and to provide some important context and facts that readers of the Campus can use to make up their own minds.
Yes, the one-year return for Middlebury’s endowment in fiscal year 2015 was 6.9 percent. But “terrible” is hardly a word I would use to describe it. Preliminary data from the 2015 NACUBO-Commonfund Study of Endowments (NCSE) show that educational endowments’ investment returns averaged 2.4 percent in FY 2015. Larger endowments (such as Middlebury’s) posted the highest returns for the 2015 fiscal year, as institutions with assets over $1 billion reported an average return of 4.2 percent. The 2015 study is preliminary and will be final in January 2016, but our 6.9 percent looks pretty good when compared to this data. Also, the return on investment for our endowment was 6.9 percent, which equates to $74 million (not the $19.1 million Ethan stated). The $19.1 million number is, rather, the net change in the endowment, which is determined by the investment return plus new gifts less the annual payout from the endowment that supports many operating and capital needs of the institution.
Furthermore, it is worth pointing out that endowments are designed to exist in perpetuity—as are the institutions they support. Therefore, the most meaningful way to look at and evaluate endowment returns is over a longer time horizon than one year. Over the past 10 years, Middlebury’s annualized return was 8.7 percent, which outperformed the passive benchmark of 6.9 percent over that period. Our active management has outperformed the passive benchmark by 180 basis points a year over 10 years. That is substantial outperformance and is in the top quartile of returns when compared to other colleges and universities. Over the past 10 years we have seen our endowment grow by $400 million, thanks to the generosity of alumni and friends of Middlebury PLUS the expert investment management of the Middlebury endowment. And don’t forget we had a thing called the “Great Recession” during that 10-year period.
In addition, no evaluation of an endowment performance is worthwhile if it doesn’t factor in risk metrics. Our investment philosophy is rooted in both long-term thinking and risk mitigation. That means that we aren’t likely to be among the very highest performers in an up year. But it also means that we generally will perform better than most in poor years. This approach has served us well. It has ensured that our endowment continues to grow and meets our spending needs for current students and faculty and future generations of students and faculty.
Patrick J. Norton is the Vice President of the Finance and Treasurer's Office at Middlebury College.
