Williams 101: The Endowment

This piece is the third installment in our “Williams 101” series, a set of articles on the basic structure and operations of the College. Our aim in this series is to help the entire College community, and students in particular, better understand and be able to engage with their institution. This third piece will focus on the College’s endowment.

Each year, the Williams College Investment Office is tasked with growing the College’s over $2.3 billion endowment even as the College spends up to 5 percent of its smoothed value yearly and inflation continues to rise steadily. In the last 10 years alone, the endowment has accounted for over $800 million in spending.

After the endowment surpassed $1 billion in value in the early part of the 2000s, the College opened the Investment Office in 2006 with the understanding that the endowment needed a full-time staff to oversee its investments. In the 10 years since, the endowment has averaged a 7.3  percent real annualized return.

While this is generally considered successful relative to similar institutions, measuring the success of an investment return can be somewhat difficult; its success must be measured relative to a benchmark and this benchmark must take into account trends in the general market in any given year.

In the College’s annual investment report, it measures the returns of the College’s portfolio relative to its own policy portfolio benchmark, a 60/40 bond/stock portfolio and a return objective. While the details behind the College’s internal benchmark are somewhat unclear, the 60/40 bond/stock portfolio essentially takes the weighted average of a sector of the bond/stock market to determine how investments should be doing on average given current market conditions. The return objective is simply a real return of 5 percent plus inflation. The College’s endowment returns relative to these three measures over the past one, three, five and 10 years are displayed below.

While the results over longer periods of time have consistently exceeded the College’s goals, the report made clear that the results from 2016 are “disappointing.” The College performed poorly in the global long equity portfolio, due in large part to volatility in healthcare and industrials, and only brought in 7.6 percent returns compared to the 25 percent target allocation. The College did, however, over-perform in real estate and buyouts (the full endowment report can be accessed on the Investment Office’s website).

Still, despite the less than optimal previous year, the report emphasized that the College is still satisfied with its long-term returns, noting that individual years are less important than general trends over longer periods of time.

The next installment in this series will focus on the Colleges Board of Trustees.