Report of the Ad Hoc Committee on Investments and Responsibility
From the board chair and the president
To the Bowdoin community,
We are writing to share the report from the Ad Hoc Committee on Investments and Responsibility (ACIR) that was presented to the board of trustees earlier this week, and to let you know that, after careful deliberation and discussion, the board voted to approve the recommendations contained in the report.
The work of the ACIR began in September, following last spring’s Bowdoin Student Government (BSG) Solidarity Referendum. The committee was established to develop a “set of considerations and principles that we can turn to when analyzing questions that emerge at the intersection of the College’s mission and its investment practices.” The ACIR’s trustee, faculty, staff, and student representatives have done this work with diligence and rigor, meeting with members of the campus community, speaking with experts, reviewing the historical record, and deliberating thoughtfully.
Based on this work, the ACIR made three recommendations: (1) Maintain the endowment’s current investment practices; (2) Maintain the current investment committee structure; and (3) Increase the clarity around how the endowment operates and supports the College.
In addition to these recommendations, the ACIR report also provides a one-time analysis and a rough estimate of Bowdoin’s underlying holdings in the ten publicly traded defense and aerospace companies named in the BSG Solidarity Referendum. As detailed in the ACIR report, the investment office estimates that eight hundredths of one percent of the total endowment is in those companies.
The best context for understanding our endorsement of the ACIR’s recommendations is their report (PDF), which we encourage you to read in full. We do, though, want to highlight the portions of the report that make clear the central role the endowment plays in supporting Bowdoin’s core educational mission, as well as the technical reasons that endowment investment adjustment and ongoing holdings-level disclosure are impracticable.
We believe that Bowdoin’s greatest contribution to positive change in the world comes from providing an exceptional education that prepares our students to be thoughtful, engaged citizens and world leaders. This was a starting principle for the board’s review of the ACIR report and its deliberations. Another was the board’s fiduciary responsibility for the College’s ability to fulfill its mission.
Bowdoin’s endowment plays a critical role in this endeavor. Over 50 percent of the College’s total operating budget is funded from the endowment. By comparison, net tuition, room, board, and fees fund 37 percent of our operating budget. It is therefore a simple truth that our ability to maintain our excellence and to continue to evolve as a college hinges in large part on the investment performance of the endowment.
In making its first recommendation, the ACIR considered the question of whether our investment strategy should shift from a financial performance-based model to one that allows for the College’s investments to reflect political viewpoints. The ACIR noted that using our endowment to make political statements on world affairs introduces the risk of losing access to the best investment managers, which in turn jeopardizes the future performance of the endowment and its critical support for all that we do. This risk is not hypothetical—our contracts with our investment funds prohibit us, or any of their investors, from picking and choosing which investments they make. If we insisted, we would be excluded from the fund.
On this point, the board emphatically agrees. We understand that some members of our community feel strongly that there are occasions where Bowdoin should use its endowment to try to effect political change. Even if that were practicable, and even in cases where there is more consensus around a particular viewpoint, we would see our obligation differently. We believe that our core mission as a college is to empower our community to learn from one another, and to bring together faculty, staff, and students with differing and diverse expertise and experiences to bear in those conversations.
The financial strength and growth of Bowdoin’s endowment is directly tied to the highly competitive and best-in-class third-party fund managers that our investment office and investment committee vets and selects. The investment office carefully screens investment managers, a process that typically takes six months or more and includes interviewing their staffs, probing their ethics, alignment, and culture through extensive references, and analyzing their investment returns across economic cycles. Over fifty firms manage the endowment’s investments, and their successes are measurable—our endowment’s financial performance ranks in the 99th percentile of all endowments over the past five-, ten-, fifteen-, and twenty-year periods, as of the end of the College’s most recent fiscal year.
The outsourced nature of Bowdoin’s investments across firms, strategies, and investment vehicles makes ongoing disclosure of its holdings an impossibility. The more than fifty firms that manage the endowment’s investments report at different times with varying levels of detail, and none provide real-time, holdings-level detail. Additionally, the investment mix of any given firm is proprietary and confidential, as it is how they differentiate themselves in a competitive industry.
Many members of our community have wondered, then, how Bowdoin was able to disclose its exposure to fossil fuel funds and divest from companies that did business in South Africa in the 1980s. Each has its own explanation. Investing in conventional energy production is a highly specialized field, with a very small number of managers that do that type of investing. Because of this high degree of sector-specific specialization, disclosure was possible. The vast majority of Bowdoin’s endowment is invested with generalist firms, not industry specialists. The divestment movement against apartheid in the 1980s occurred at a time when Bowdoin’s endowment was $127 million, and the portfolio consisted primarily of cash and traditional directly managed stocks and bonds. That stands in stark contrast to today, when our portfolio has no direct investment in stocks and bonds at all.
The board also agrees with ACIR’s second recommendation to maintain the current investment committee structure rather than forming a separate oversight committee as requested in the BSG referendum. Trustees have complete trust and confidence in the expertise and processes of the investment committee and investment office, which have guided one of the nation’s top-performing endowments over many years.
The ACIR’s third recommendation is to provide greater clarity to the community about the role of the endowment, how it functions, and how it supports Bowdoin’s financial model. Board members agree with this recommendation and its importance. This message, and the ACIR report, is the beginning of that process for us, and we will continue to add more resources in the months and years ahead.
We want to express our sincere gratitude to the members of the ACIR for their diligent and thoughtful work. Their report provides a valuable framework for thinking through and understanding the complexities of endowment management and the important factors to be considered. We are confident that the ACIR recommendations adopted by the board will help us best fulfill our mission, both in this moment and in the future.
We also thank the Bowdoin community for their engagement. The varied and candid perspectives shared with the committee were an essential part of the process.
Sincerely,
Scott Perper, chair, board of trustees
Safa Zaki, president