Swarthmore College Bulletin: Supporting the College's Mission

How does the College generate revenue? Tuition is one answer. Support from grants and donations contribute approximately 5 percent to each year’s operating budget, but the other main source of income—and the most variable, given its source—comes from revenue generated by the endowment.

Swarthmore’s Finance Office works with 80 investment managers to manage its $1.9 billion endowment. Their work is overseen by the Board of Managers’ Investment Committee (IC).

To better understand the endowment and the Board’s decision two years ago not to divest from fossil fuel companies, Alisa Giardinelli, director of Web and media communications, spoke with Chris Niemczewski ’74, who joined the IC in 1998 and has chaired it since 2009. 

Explain the significance of the endowment.

If you go back 20 years, it contributed about $20 million a year, or a third of the College’s annual operating expenses. This year, the endowment’s contribution is about $66 million. Next year, when we increase spending on financial aid, it will be $76 million, just over 50 percent. So it’s pretty important. 

Why is it successful? 

We had good performance relative to our peers from the 1950s until the 1980s, principally because Tom McCabe [Class of 1915] got us to put a lot of money in common stocks when other people had most of their money in bonds. He was ahead of his time. 

From the 1980s until about 15 years ago, we performed less well. It took us a while to understand new entities such as hedge funds and private equity funds, so we underperformed. 

Then in about 2002 Parker Hall [’55] devised a new plan that involved investing in those new categories. We followed his advice, which drives how the endowment is invested to this day. Mark Amstutz was also hired as chief investment officer and during the last 10 years has brought us up to par with our Ivy League peers and equal to the best of the Ivy League for the last five. I think the College should throw him a parade.

Who are our investment managers? 

We’ve been able to hire some of the smartest people in the business. We obviously care about their performance over time. We don’t want people who will make 40 percent in one year and then give two-thirds back in a bad year. 

We are always looking, but we are steadfast and have been with a number of firms 20 years or more. 

Tell me about the Board’s divestment decision.

Two years ago, the Board had two concerns that made it hold back from divestment. Many of us, including me, believed there would be a cost to the endowment if we did. Second, there were some questions about the efficacy of divestment as a strategy. The general sense was that divestment would convince those who are already convinced about the dangers of climate change and fail to impress those who are in the fossil fuel business. 

How much would it cost?

Our best guess is that it would be in the millions, perhaps between $10 to 20 million per year. That’s based on the past performance of our current managers. 

Why would there be a cost?

A few of our investment firms manage separate (not commingled) accounts for the College, which is what my firm does. In those cases, it is easy for a client to come to the investment manager with specific needs or requests, such as for a fossil-free portfolio (although my firm does not have any investments in fossil fuels).

Most of the College’s endowment is in commingled accounts—our funds are mixed with the funds of our investment managers’ clients. For those managers to divest, they’d have to divest for all their clients. Or we would have to sever ties with them. 

We assume that it would be difficult, if not impossible, to replace our current investment managers with ones of similar quality—if we insist their funds be fossil fuel free. Now, one could assume that one would find very talented managers with fossil fuel alternatives. I don’t believe that option exists today, though I expect that over the next several years, more of those alternatives will become available. 

The endowment is large, but it’s finite. If returns are lower now and you spend the same amount of money, you are reducing the amount of money available in the future to people working here or students coming here.  

When Swarthmore divested from companies doing business in South Africa (and I agree with that decision), the College tried to replace managers with ones of similar quality, but there was a performance cost. Among other things, students and families were offered less financial aid because of that decision. If we did this again, it would likely have the same effect. It’s not as simple as, “if we did this, it would be right,” because you have competing goals.

Should the endowment reflect College values? 

I’m totally on board with those who say, “Climate change is a very important issue, and I’m not going to invest my money in fossil fuel stocks.” But it gets more complicated when you say, “I believe climate change is an issue, and the implication of what I believe is for Swarthmore to give less financial aid.” I also don’t know how you convince people who care about other issues that this is the only issue that matters. 

A lot of ideas came out of the Sustainability Charette. What else is the IC exploring?

New energy technologies are a difficult area in which to make money, but we look at everything that comes down the pike. I continue to believe that the simplest way is to shift the College’s carbon neutral goal from 2035 to 2025. It would take a lot of money, but that’s something we can control. I’m also in favor of the College setting up a separate investment vehicle for people who want to contribute but who don’t want to invest in fossil fuels. We are researching that as part of our preparation for the May Board meeting. 

Why do you do this work for the College? 

I had a full scholarship at Swarthmore. It changed my life. It taught me to think, challenged me, and showed me it was OK to work hard at being smart. I started as an economics major but wasn’t sure what I wanted to do, so I became an art history major.

What do you hope happens next?

I wish we could all get on the same page so we could move ahead. This is a really important issue, and we’re walking into a corner on whether we should own stock in Exxon, which will not affect Exxon at all. But there are things to do. The complexity here is just not whether you make the gesture. It’s, “Who pays for your gesture?”