Providence, Rhode Island [Brown University] — University endowments, once a topic often reserved for budget meetings and fundraising conversations, are increasingly taking center stage in discussions about a variety of issues.
“Endowments, especially those to the nation’s wealthiest institutions, continue to be of great interest, not only in the university community, but also among communities, policy makers, and others,” said Brown University Vice President Jane Dietze. Even among the general public.” and chief investment officer. “And especially during times of social unrest or geopolitical unrest, there is heightened interest in how universities invest their endowments. Social issues often raise questions about the role of finance in social issues. there is.”
Dietze spoke in a wide-ranging Q&A about recurring questions about Brown University’s endowment, ethical investing, and divestment.
As of the end of the fiscal year ending June 30, 2023, Mr. Brown had endowments and other assets under management of $6.6 billion. With such wealth, Dietze said, questions regularly arise about how endowments are used, how they are invested and who makes investment decisions.
Dietze said that while these questions often center conversations, debates and protests on campus and around the country, few people really understand the endowments themselves. She and her team at the Brown Investment Office have been working to change that.
Q: For those who don’t know, please briefly explain what Brown University’s endowment is and its purpose.
The Brown Endowment is a collection of contributions made to Brown by alumni, parents, and friends of the University since 1764, or approximately 4,000 individual gifts. Each gift is codified in a gift agreement, a legal contract, that designates support for a specific purpose, such as financial aid to students, endowed professorships, academic programs, research, or libraries. These gifts are pooled and invested. Embedded in a diversified portfolio of financial assets, a portion of each endowment (approximately 5% per year) is distributed to the University’s budget for designated purposes. The Brown University Corporation determines how much of the endowment to spend each year.
When you manage your capital in this way, its returns, or 5% per year, can continue to fund your designated purpose forever. But each year, whether revenues rise or fall, a portion of each donation must be used to support the original purpose. The investments we make are intended to protect your endowment from depreciating in value over time due to inflation, and ideally allow us to increase the impact of each gift by increasing the size of your endowment. It is designed to.
So, in personal finance terms, this is similar to a retirement fund that requires minimum distributions, except it has to last forever. Our job at the Brown Investment Office is to make smart investments with appropriate levels of risk and grow your funds over time.
Q: Why do you think it’s important for people to understand how Brown’s endowment works?
Endowments, particularly those to the nation’s wealthiest institutions, continue to be of great interest not only within the university community, but also in the local community, nationally, and among policymakers and the general public. Why aren’t we spending more? Why aren’t our donations being used to support different initiatives and programs? Or are our donations funding other initiatives? We often get asked questions. And especially in times of social unrest and geopolitical unrest, there is heightened interest in how universities invest their endowments. Social issues often raise questions about the role of finance in social challenges.
We find ourselves in such a moment now, as questions continue nationally and globally about issues such as fossil fuel investment, gun violence, and the conflict in the Middle East. And this is in addition to our regular questions about how our giving supports the needs of our communities and institutions in areas such as academic programs, compensation, and financial aid. Questions that arise at times like these are often based on confusion and misunderstandings about donations. The Investment Office has made presentations in recent years to various groups of students, staff, faculty, and alumni throughout the Brown community, providing an opportunity to provide all stakeholders with a fact-based understanding of Brown’s endowment. We are actively incorporating it.
One common misconception is that all donations to Brown go to the endowment fund, but that is not the case. Gifts to the Annual Fund from alumni, friends of Brown, and other donors are not included in the endowment. They spend the year. Additionally, no tuition or fees of any kind will be contributed to the endowment. An endowment is established as a legal contract with a large donor who wishes to fund a specific purpose during the life of the facility. So, it’s the kind of thing that can be resolved with a little more communication.
Q: How does Mr. Brown make investment decisions?
The complexity of financial markets has increased dramatically in recent decades. To generate appropriate risk-adjusted returns for Brown, the investment bureau will focus on the best in each sector, including decarbonization, biotechnology, European financial technology, catastrophe reinsurance, and specific geographies such as India and Japan. We strive to partner with talented investors. Currently, the majority of Mr. Brown’s endowment (approximately 96%) is invested in third-party management companies. Our team at Brown thoroughly researches these managers and their strategies (often for several years before investing) and closely monitors the progress of each strategy. From a supervisory perspective, the Investment Department is primarily responsible to our Investment Committee. [of Brown University]. In addition, Brown’s internal audit group and an external “Big Four” audit firm inspect our books annually. Also, like other nonprofit organizations, we have laws in place to ensure that our donations are managed responsibly.
Q: Is there a mission or investment philosophy that influences your investment decisions?
The stated mission of the endowment is two-fold. One is to sustain and prudently grow the endowment and its income-sharing capacity in perpetuity to support the university’s educational mission.
The first principle is to preserve property. Endowments to universities this year will be $299 million. It funds research, provides financial aid, pays salaries, and countless other things essential to Brown’s day-to-day operations. Brown couldn’t do without his contributions. This represents 16% of his annual operating budget, so we put protection first.
The second principle exists to grow the endowment prudently and to allow this resource to grow its impact on the University’s mission over time. To grow your endowment, your investment return must equal your annual gift to the university, but it must also exceed inflation. This creates a kind of hurdle to investment returns, which we try to clear by making long-term investments that increase in value over time.
Brown often gets asked this question. Why not spend more on the endowment? Imagine if from 2013 his payout rate was only 1% higher until 2023. Less money will be invested each year, and endowments will grow more slowly. In 2024, the value of the endowment will be $900 million less than the normal payout rate, meaning Brown will have $38 million less available for all funds supported by the endowment.
