Thanks for the good reporting on Amherst’s decision to divest fossil fuel assets from its endowment portfolio and Williams’ reluctance to do the same, even though Wesleyan, Middlebury, and many other colleges and universities have already taken the green step.
Your article raises the question of why Williams is dragging its feet on this issue.
One answer is that such a move could hurt returns on Williams’ endowment portfolio, and so threaten the College’s financial health. But multiple studies show that investment portfolios without fossil fuel assets can perform as well as portfolios with them.
The Jan. 9, 2020 Economist, for example, reports that Jeremy Grantham, the founder of the well-regarded investment firm GMO, created a synthetic portfolio leaving out fossil fuel investments, and this omission made no difference to the portfolio’s performance. Between 1989 and 2017, the S&P stock market index returned an average of 9.71 percent annually. Grantham’s synthetic portfolio excluding energy stocks returned 9.74 percent annually over the same period.
A second answer to the question of why Williams is dragging its feet on divestment is this:
The Williams endowment fund is managed by a handful of professionals advised by a handful of alums united in a particular style of investment. This style puts a premium on taking advice from leaders of hedge funds and private equity firms.
One such leader is former College trustee chair, and current emeritus member of the investment Committee, Michael Eisenson ’77. In 2015, when the campus divestment movement last peaked, Mr. Eisenson led the opposition to the sale of fossil fuel assets in the College endowment portfolio. At the same time, Mr. Eisenson’s private equity firm, Charlesbank Capital Partners, held a stake in RGL Reservoir Management, a company specialising in sand control and flow control technologies used in processing Canadian tar sands. Campaigners asked if the College had a position in RGL Reservoir Management through Mr. Eisenson’s firm. The College did not respond.
While reorganising the College’s endowment office in 2006, Mr. Eisenson appointed Collette Chilton as the College’s chief investment officer. Working with the College’s Investment Committee, Ms. Chilton generated annualized returns of 10.3 percent over the last ten fiscal years. This compares with annualized returns of 10.1 percent over the same period in the standardized stock and bond portfolio against which the Investment Office measures itself.
These figures come from the Investment Office’s 2020 annual report. They mean that if you add in what it cost to maintain the Boston-based Investment Office and the salaries of the full-time professionals working there over the past ten years, Williams would arguably have earned more on its money if it had shut its Boston Investment Office, ignored the advice of its hedge fund and private equity alums, and put its endowment in low-cost tracker funds.
According to Paddock Post, a website looking at nonprofits, Ms. Chilton earned $1,476,023 in the latest year for publicly available figures. Former College president Adam Falk earned $810,821. No faculty made the top-earners list.
Another such leader is O. Andreas Halvorsen ’86, the chief executive of Viking Global Investors, a hedge fund group with a record of relatively rapid-fire purchases and sales of shares in fossil fuel companies such as Midland, Texas-based Diamondback Energy. Again, the College declines to say what, if any, positions it holds in Mr. Halvorsen’s funds. But according to the Investment Office’s 2020 annual report, hedge funds make up 38 percent of the overall College investment portfolio.
Mr. Halvorsen is both a College trustee and member of the Investment Committee. Four other trustees double up the same way: Timothy Barrows ’79, Noriko Honda Chen ’89, Jonathan Sokoloff ’79, and Nathan Sleeper ’95.
A different group of financial professionals not wedded to Williams’ current style of investing could generate equally good returns while embracing a phased divorce of fossil fuel assets from the College endowment. Such a divorce could work as follows:
— Stop all further investments in private equity funds linked to fossil-fuel assets immediately.
— Halt within one to two years further investments in hedge funds trading in and out of fossil fuel assets.
— Halt within three to four years fresh investment in funds holding fossil fuel assets in all Williams Investment Office asset classes.
— End by 2030 all investments in all funds holding fossil fuel assets.
Peter Koenig ’66
Peter Koenig ’66 lives in London and was an award-winning financial journalist for the London Sunday Times.