Despite the unexpected success of the Wesleyan Student Assembly (WSA) endowment—the first and only student endowment in the country—during much of the economic recession, it recently saw a three percent drop from $207,819 at the end of the first fiscal quarter of 2010 to around $201,500. This decrease was largely due to a 14.58 percent drop in the value of the WSA endowment’s shares in the Winslow Green Growth Fund, a mutual fund that invests in stocks of “green,” environmentally sustainable companies.
The downturn in the WSA endowment follows three previous quarters of positive, though slowing, returns. The WSA Endowment Committee (WEC) first decided to invest in the Winslow Green Growth Fund last year, when it was still performing well. Approximately 18.65 percent of the WSA endowment is currently invested in this mutual fund.
“Recently, in the past half year, the green sector hasn’t been doing so well, which was honestly a little bit surprising given the pro-environment orientation of the Obama administration,” said Student Budget Committee (SBC) Chair and WEC Chair Andrew Huynh ’11 during the WSA meeting on Sunday, Sept. 16. “There was a feeling that there would be a boost to clean energy, so it seemed like a feasible investment.”
According to Assistant Professor of Economics Abigail Hornstein, while markets in general are highly volatile right now, “green” sector firms are struggling more than the average firm because they often have smaller profit margins to begin with and they tend to appeal to smaller, more specialized groups of consumers.
“With consumer expenditure down right now, ‘green,’ I think, is becoming a luxury for some,” she said.
Most of the companies that the Winslow fund invests in are small to medium-size companies whose stock share values tend to be more unpredictable than those of larger companies. Smaller “green” companies may also be more likely to perform poorly in the current economic climate because they often lack the brand image needed to convince consumers to pay a premium for environmentally sustainable products, according to Hornstein.
Despite the drop, several WSA members said that it is too early to significantly decrease the endowment holdings in the Winslow Green Growth Fund.
“I think that people at the meeting last night were overreacting,” said WSA Sustainability Coordinator Josh Levine ’12. “We’ve had the mutual fund for less than a year—there’s going to be some volatility.”
Nonetheless, according to Huynh, the WSA does plan to reduce its investments in the fund to some extent.
“I don’t want to completely disassociate ourselves with it, because I do think that it has a lot of potential in years to come,” Huynh said. “But to the degree that we’re currently holding shares in this particular mutual fund, we’re probably going to draw down slightly to decrease our exposure to the volatility.”
The WSA will be working with the Investment Office to discuss future endowment decisions, with the hopes of further diversifying the WSA endowment portfolio and moving toward less risky and volatile investments, Hunyh said.
The WSA Endowment was also pulled down during the last quarter by a 3.1 percent decrease in the University Endowment, to which about 30 percent of the WSA Endowment is tied. The remaining WSA Endowment funds lie in fixed-income investments in the PIMCO Total Return Fund III—comprised of bonds that have been deemed “socially responsible”—and in the local MiddConn credit union.
While the holdings in MiddConn offer only .56 percent returns, these returns are very steady and the investments support local businesses.
“The money helps the local Middletown community, so it’s a form of outreach,” Huynh said.
According to Hunyh, MiddConn share certificates will also mature over the next two years and could offer the WEC a chance to move money to somewhere that offers higher returns.
The goal of the WSA endowment is to prevent increases in the $270 Student Activities Fee that all students pay each year. The SBC budget is currently financed entirely through this fee and does not pull funds from the endowment to finance student activities.
“[The decrease] doesn’t affect our ability to serve the student body,” Huynh said.
In the long term, the endowment could hypothetically be used to eliminate the Student Activities Fee altogether, though this will not happen for at least 30 years, according to Huynh.
“At $200,000, there’s just no way that [the WSA endowment] will grow significantly enough to do anything to help reduce or eliminate the student activities fee [within the next 10 years],” he said.
2 Comments
David Lott, '65
“Most of the companies that the Winslow fund invests in are small to medium-size companies whose stock share values tend to be more unpredictable than those of larger companies.”
Actually, it’s quite predictable. These companies are not financially strong, and are competing in a overcrowded, speculative and highly competitive market. A large loss (and this was a large loss) is likely.
Also, a profit for the last three quarters of 2009 is not surprising. That was one of the fastest rising stock markets ever. You might explain how the fund did in comparison to its benchmarks.
It does have benchmarks, right?
Someone should explain the concept of fiduciary duty to the managers of this money.
Also, label your charts, so the reader can see what the time period is.
Andrew Huynh '11
David,
I would like to address that the volatility of the Winslow fund is definitely an area of concern, which is why there is consideration in reducing our current holdings and reinvesting in alternative funds. I also want to point out that the returns featured in this article are as of June 30, 2010 – since then, the fund’s returns, anecdotally, appear to have improved quite a bit (our final numbers for Q3 2010 are not available until early-October).
When considering the range of investments within our portfolio, our fiduciary duty is our highest priority. Like many other portfolio managers, we have seen an unfortunate contraction in this period; I am pleased to say, however, that our year-to-date return is 5.99%. So while we have had a disappointing quarter, we are still experiencing positive investment returns over a longer period.
Finally, in terms of the graph, there were axis labels that appear to have been cut out inadvertently when this article was posted. The time period for this particular graph is June 30, 2009 to June 30, 2010.