Financial Future Update Spring 2015

This article is part of our ongoing series about Grinnell College’s finances. In fall 2015, the Grinnell College Board of Trustees will vote on whether to continue the College’s need-blind admission policy. The endowment, student revenue, and philanthropy are the College’s main sources of revenue.

Grinnell’s Endowment: The Past, Present, and Future

During his many years on the College board, from 1941 until his death in 2000, Joe Rosenfield ’25 helped the College turn an $11 million endowment into $1 billion. In addition to making his own significant gifts, he also advised the College on strategic investments that paid handsomely.

In 1968, the College invested in a startup company — Intel, founded by Robert Noyce ’49. The College sold its stake in Intel in 1980 for $14 million, a profit of 4,583 percent. Another significant investment was the purchase in 1976 of WTDN, a television station in Ohio, which the College sold five years later for $49 million, making a 281 percent profit.

From 1980 through 2014, the endowment grew from $400 million to $1.8 billion. During that time, investments earned $2.6 billion, spending distributions totaled $935 million, and gifts to the endowment totaled $69 million.

The College investment staff researches investment opportunities and makes recommendations to the board’s investment committee. The goal of asset allocation is reasonable, but not excessive, diversification that targets a globally diversified portfolio across all asset classes.

While the primary social responsibility of investments is the financial support of the College’s mission, the College’s investment policy states, “the Investment Committee recognizes the importance of socially-responsible decisions to the long-term financial performance of business enterprises.”

The College currently has investments in these environmentally sustainable funds:

Global Environment Fund (GEF) is an environmentally-focused fund that invests in energy and natural resources sectors.

Intellectual Ventures has as one of its key themes clean technology inventions that are related to energy harvesting, recycling, biofuels, energy storage, and sustainable materials.

The College also has endowment funds invested in fossil fuels. As of December 2014, those investments represent 7 percent of the endowment.

The College spends 4 percent of the endowment’s market value based on the trailing 12-quarter moving average; this value is determined annually immediately prior to the beginning of the fiscal year in July, based on the 12 quarters ending the previous Dec. 31. Averaging the value over 12 quarters helps smooth out peaks and valleys in the market. The fiscal year 2015 distribution was calculated on the March 2011 quarter through the December 2013 quarter, for a value of $59.2 million.

By policy, the endowment distribution cannot be used to support only the College’s operating budget. Part of the annual distribution is used to fund the strategic reserve. This split balances existing commitments with future opportunities and responsibilities.

In addition to the strategic reserve for new initiatives, the College also maintains two other reserves: an operating reserve to mitigate downside operating risk and a building, maintenance, and equipment reserve for routine capital projects of less than $1 million. Larger-scale capital projects are handled through different funding mechanisms.

Plans for creating a more sustainable financial future for the College include proposals for two new reserve funds: one for community infrastructure, to continue building the College’s partnership with the city of Grinnell; and one for institutional infrastructure, to fund larger building maintenance projects. Creating these new reserves will require a shift toward a more balanced revenue profile, depending less on the endowment for operating expenses.

The current revenue profile relies heavily on the endowment: 55 percent from the endowment distribution, 39 percent from net student revenue — tuition, room, and board — and 6 percent from gifts and other miscellaneous sources. The long-term target revenue profile is 45 percent from the endowment distribution, 45 percent from net student revenue, and 10 percent from gifts and other sources.

The College is working hard to achieve the targeted revenue profile to ensure the long-term financial sustainability of its business model. However, this is a major shift from the current state, and it will take several years and significant change to achieve.

Investment Policy at a Glance

• Ensure long-term growth versus maximizing annual income or short-term returns.
• Recognize the impacts of volatility and liquidity on the responsibility to provide predictable/stable financial support.
• Expect total returns to meet or exceed endowment spending plus inflation.
• Preserve or enhance real purchasing power of the endowment into perpetuity.