That fund uses a negative screen for fossil fuel stocks and favors equities with higher ratings on items associated with environmental, social, and governance matters. The new fund is also passive, which means the school has cut asset management expenses by two-thirds, he says.
Gould says he was initially resistant to the idea of removing fossil fuels. “You don’t like anything that will reduce your flexibility in making portfolio decisions,” he says. “I thought it over for several months. This was not something we could reject out of hand. There is actually some logic to it for Pitzer.”
For an idea of what may happen to NC State’s socially responsible fund when it’s fully invested, one could look at an endowment of a similar size that’s been in the sustainable business for years. Hampshire College in Massachusetts decided to rebuild its endowment in a socially responsible manner after its value declined 25 percent during the financial crisis, to $27 million. It sought out managers and funds that followed its new criteria. The entire $48 million endowment is now in sustainable assets, and it had an annual return of 24.5 percent through June 2017. “It’s really a quality screening technique,” says Richard Hurd, chairman of the investment committee. Investment returns for the same period averaged 12.7 percent for endowments and foundations, according to data from 450 nonprofits compiled by Cambridge Associates. One of Hampshire’s managers is Generation Investment Management, which also counts the Park Foundation as a client.
The Park Foundation’s $50 million pledge isn’t its first. It’s been donating money for student scholarships for more than two decades to honor its founder. After graduating from NC State, Park created and ran Park Communications Ltd., which encompassed 22 radio stations, 11 television stations, and 144 publications, including 41 daily newspapers. Park died in 1993, bequeathing more than 70 percent of his holdings to the foundation, based in Ithaca, N.Y. Ithaca College became a recipient of funding, as did NC State with an annual gift.
Eventually, funding for the NC State scholarships will come out of the returns generated by the socially responsible fund instead of yearly contributions. The foundation created the endowment to ensure that the school will have resources for the program in perpetuity, says Park Foundation Executive Director Jon Jensen.
The Park Foundation itself is invested in a sustainable way through 16 managers, and returns have been stellar: 21.6 percent for the year ended June 2017. In addition to excluding companies that don’t comply with its ESG policy, the foundation specifically excludes the fossil fuel sector and companies with more than 5 percent revenue exposure to weapons, nuclear power, tobacco, alcohol, and gambling.
The Park Foundation expects to donate the remaining $40 million to NC State’s socially responsible fund after the estate of Dorothy Park, the widow of founder Roy, is completed, likely sometime this year. Dorothy died in June 2016 at the age of 103.
NC State plans to open the sustainable endowment to individual donors to the school as soon as the full amount has been invested. The school then expects to diversify with about a dozen managers. Its target allocation is 25 percent in U.S. stocks, 25 percent in private assets, 20 percent in global equities, 5 percent in emerging equities, and the remainder in fixed income.
Once they’re in the market, the fund’s managers expect to find an investing landscape with more sustainable choices. “There are so many more opportunities today than there were when we started out,” says Libby George, director of investments for NC State’s endowment. “Just in the five years since we really began this, we believe the whole environment has changed. The universe of what is available to us is different.”
This article was provided by Bloomberg News.