Dollars and Sense
Rensselaer’s endowment, of course, is not literally money in the bank. Since only a portion of the funds in the endowment are spent annually, one of the most important concerns is how the rest of the money is invested. A significant change at Rensselaer occurred in this area three years ago when, with President Jackson’s leadership, Rensselaer created the position of Chief Investment Officer to maximize returns on the endowment.
Previously, managing assets had been the sole responsibility of the investment committee of the board of trustees. Now the Chief Investment Officer and his staff initiate many of the strategies, with the board’s oversight a modernized setup geared to a fluid, complicated investing environment.
“Dr. Jackson’s focus on investing and knowledge about it are rather unusual for a president,” says Gregg. The university hired Walé Adeosun, formerly a managing director at the MacArthur Foundation in Chicago, as its first Chief Investment Officer, and in turn, Adeosun has set about changing the way Rensselaer invests its money.
“We adopted a capital preservation philosophy,” says Adeosun. “If you lose money, it’s harder to get it back. But we’ll try to capitalize on the upside. We’ve aimed to have a more diversified portfolio, across more asset classes.”
In practical terms, this means the Institute has reduced the percentage of its holdings in U.S. stocks. Whereas about two-fifths of Rensselaer’s endowment once consisted of domestically-traded stocks, that figure is now around 20 percent, the desired target. The university aims to have a similar percentage of the endowment in non-U.S. stocks and in what it calls “marketable alternatives,” meaning a range of investment strategies that can include hedge funds. Rensselaer is looking to invest 15 percent of the endowment in each of two other types of holdings fixed-income funds and equity in private companies while trying to increase its holdings in “real assets,” including real estate, from three percent to 10 percent.
That approach is meant to insulate Rensselaer from sudden losses. In February, when the Dow Jones Industrial Average of stocks took its worst plunge in more than five years, Rensselaer’s now-diversified holdings allowed the endowment to shrug off the event. “It was something we’ve been expecting,” says Adeosun. “There had been too much liquidity in the market, from speculators flowing in with their funds. A correction like this gets rid of the froth. Those of us who believe certain markets have good fundamentals can stay in there, and let other people leave.”
Adopting a seemingly conservative approach would also seem a natural consequence of increasing the endowment. Rensselaer’s endowment, after all, has gone up over $200 million in five years. With more money to invest, any reasonable rate of return will produce more revenue in absolute terms, making risk reduction all the more appealing.