Impact Worthy

I was excited to read “Impact Worthy” (spring 2017). One of my clearest memories as an undergrad was when the provost came into my geology class and drew a pie chart on the board showing us where the money that paid for our Williams education came from and how it was spent. That’s when I first learned that 50 percent of each student’s annual cost of education is subsidized by the endowment. Understanding how the endowment is funded, invested and deployed should be something every Williams student is readily exposed to. But one section of the magazine interview baffled me a bit. President Falk stated, “As important as climate change is, it’s not more important than access to Williams.” The college still needs to hone its thesis around sustainable investing. We can all acknowledge that divestment is not an appropriate reaction for lots of reasons (expensive, difficult to execute with co-mingled funds, limited actual impact, etc.), but the interview, unfortunately, glosses over the fact that there are lots of ways to promote sustainability across the endowment’s portfolio besides divestment. If the endowment is fundamental to promoting the college’s mission, then the way in which we invest that endowment should promote that mission. Not just $50 million of it, but the entire thing.


Williams’ commitment to sustainability is commendable, but regarding divestiture, President Falk’s statement that “as important as climate change is, it’s not more important than access to Williams” is disturbing in its binary logic. One, strong evidence shows that divestiture need not slow growth. Two, Williams need not “divest fully” all at once. And, three, smartly scheduled, benchmarked impact investing can transform the portfolio to clean energy. Williams is committed to preparing students to live in a future today’s trustees will never see. President Falk’s words notwithstanding, there is one thing more important than students having access to Williams: Students having access to a planet worth inhabiting. Stanford, Yale and others are acting. The climate continues to deteriorate. How long will Williams wait?


Impact Worthy” correctly mentions that 11 percent of Williams students come from the bottom 40 percent of the income bracket. But also: 18 percent of Williams students come from the top 1 percent of the income bracket—that is, households making more than $630,000 per year. That’s just too many super-rich students. Williams needs to be far more aggressive to position itself as a leading institution of socioeconomic mobility. We should immediately set a modest, initial goal to have at least 15 percent of our first-year students come from the bottom 40 percent of household incomes (like Barnard) and less than 10 percent from the top 1 percent of household incomes (like Swarthmore).


An illustration of many lightbulbs hanging from a ceiling.

Shedding light on the college’s substantial endowment and why it needs to grow even more.

Williams and its peers have come under fire for their large endowments. Ours stands at $2.3 billion—a large sum by any measure. There are calls for the college to spend down the endowment to reduce costs, pressure to divest from fossil fuels and threats from the federal government of penalties and taxation. With the endowment under increasing scrutiny, Williams Magazine brought together President Adam Falk, Provost and Professor of Economics Dukes Love and Chief Investment Officer Collette Chilton for a conversation with Lizzie O’Leary ’98, host of American Public Media’s Marketplace Weekend, about where the endowment comes from, what the money is used for—and why Williams is seeking to raise even more.

Lizzie O’Leary ’98: What do you see as the purpose of the endowment?

Adam Falk: To support the mission of the college, which is to educate young women and men and prepare them to be effective in the world. It’s the most important resource we have to fulfill that mission. It’s what makes possible the faculty, the programs—everything we do.

O’Leary: Walk me through how the endowment figures into the education of current students.

Dukes Love: We spend about $105,000 per student per year. Fifty-nine percent of that goes directly to compensating faculty and staff. Sixteen percent is spent on the annual costs of operating buildings, capital renewal and paying off debt. The remaining 25 percent is for everything that’s not a person or building—chalk boards, chairs, library books, energy, computers, travel.

Falk: The largest source of funding for the college’s $225 million annual operating budget is the endowment, which covers 49 percent. We spend roughly 5 percent of the endowment value every year to run the college. If we didn’t earn money on the endowment, after 20 years it would be gone.

Collette Chilton: One of the most powerful things about Williams is its close-knit community. That’s what the endowment supports. Our student interns tell us what it’s like to work in their professors’ labs, go to their houses for dinner or stay in touch with them after graduation. It’s hard to put a dollar value on that.

Falk: Oh, we can put a dollar value on it. It’s the most expensive thing we invest in, and I’m super proud of it: our student-faculty ratio, seven to one.

Love: A lot of the endowment is also going to support students on financial aid, to make sure that the most talented students from around the world can come here, independent of their families’ financial circumstances. That’s at the heart of what we do.

O’Leary: What percentage of the endowment goes to financial aid?

Falk: In a sense, all of the endowment supports financial aid. Everything we pay for with the endowment we don’t have to collect in tuition. (Tuition covers 36 percent of the cost per student.) Over the past 15 years, the net tuition revenue hasn’t grown faster than inflation, and that’s possible because of the endowment.

Love: It’s important to keep in mind that it’s not a single endowment. We have 1,660 individual endowments. The smallest has a market value of $1,133. The largest is $100.3 million to support faculty and compensation. The endowments all have different restrictions and purposes, but they’re invested as one.

O’Leary: Can you explain the 5 percent benchmark?

Chilton: Five percent is what the college needs in order to cover 49 percent of its operating expenses. Every year we model our portfolio and then structure it to support the college and try to deliver 5 percent real return over the long term. There are some single years where we perform much better than that and others where we perform much worse, like during the financial crisis. What matters, though, is the performance over time.

Falk: We do everything we can to smooth out the ups and downs. Every dollar we spend is precious. As much as it’s a great benefit to Williams to have a large endowment that supports much of what we do, we know that extended periods of growth are often followed by corrections. We take a comprehensive view in the good times and the bad.

Chilton: We’re long-term investors. We make changes at the margin. We might move 1 percent from equities into hedge funds. We have very little exposure to bonds. In the financial crisis, we had much more exposure to debt.

O’Leary: Was that because of returns or because of the volatility you saw in the market?

Chilton: It’s really about the college. Considering how much of the budget we support, we need to be careful about volatility. We don’t want to have high highs and low lows. We want to chug along in the top half of our peer universe, because over long periods of time, that will be very good for us. (View annual investment reports here.)

Falk: As president, I find that very comforting. The idea that we’re not reacting to every perceived change in the economic environment matters a lot to me, because I think of leading the college as a very long-term play. Williams has been here for 200 years. We don’t change things quickly in our educational programs or residential programs. Being supported by an investment office and investment committee that also take a long-range, steady view in their values and approach fits with the philosophy of how we lead the college as a whole. (The investment committee consists of eight alumni volunteers who assume the fiduciary responsibility of investing the college’s assets.)

O’Leary: You’ve seen the study from (Stanford economist) Raj Chetty and his colleagues looking at how colleges shape students’ prospects of upward mobility. Eleven percent of Williams students come from the bottom 40 percent of the income bracket. How do you use the endowment to increase that number? Should you?

Falk: We do use the endowment, and we should. The most important change over the last 15 years at Williams has been the increasing diversity—in particular the socioeconomic diversity—of the student body. The endowment is critical to that because of the amount we’re able to put into our financial aid program, which has grown by a factor of four over the last 15 years. That speaks directly to recruiting students in the bottom 40 percent of the income bracket. We’ve also invested in recruitment. It’s not about whether we are selecting those students once they’re in our application pool. The work is to get those students in our application pool and get them to think about Williams, to think about the liberal arts, to think about coming to a beautiful and yet somewhat hard to get to corner of Massachusetts. Our ability to do that aggressively comes from the endowment. So, too, does our ability to support students when they get here. We make incredibly important investments into academic support, mental health services, the dean of the college’s office. We now have a dean who works with all our first-generation students and one who works with international students. We’re in a position to make those investments because of the endowment. They’re as important as financial aid and recruitment to true access to Williams.

O’Leary: The college is in year two of a $650 million campaign. Why do you need to raise the money?

Falk: Every one of us at the college, whether we’re a student, faculty or staff member, benefits from the philanthropy of those who came before. We are the beneficiaries of the commitment to Williams of past generations. That gives us a moral obligation to take the same responsibility for those who will be here in the next 200 years. We also raise money because we need Williams to become better and evolve in response to a changing world. That requires resources. It’s appropriate to look to those who have benefited from the college to provide the resources that will allow others to benefit in the future.

Love: It’s also a fact that every one of our students, even full-pay students, receives a substantial subsidy from the college—the gap between the sticker price of $65,480 and the actual cost of $105,000. Every single student is receiving value well in excess of what they pay. Also, our students are going to go on to generate an enormous amount of social good in the world. This guides our educational mission, and we want to make this place accessible to more students, independent of family means. This is fundamental to the college and a socially worthwhile purpose of philanthropy.

Falk: As is access to a Williams education. We have an aspiration that, over the generations to come, we should endow our entire financial aid program. Right now, about a third of our financial aid comes from dedicated endowments. With what we’re spending on financial aid today, if we raised another $600 million solely for financial aid, we could endow the entire program. That’s more than we can do in this campaign. But in declaring a goal of $150 million for financial aid, we are conscious that, over the next four campaigns, we can get to a point where the entire program is endowed.

Chilton: The investment office just had its 10-year anniversary, and we did some data mining on the money we’ve sent to the college and the number of students it affected. During those 10 years, 4,000 students received financial aid, and the entire financial aid budget for those 4,000 students was equivalent to the outperformance of the endowment versus the market. People think, “The endowment is so big. Why should I give?” It’s the engine of opportunity for the college. And it’s those 4,000 kids.

O’Leary: Let’s talk about divestment. We just finished the hottest year on record on this planet. Is it hypocritical to invest in products that are harming the world Williams students are going to graduate into?

Falk: If I thought divestment would make any significant difference in this critical, existential crisis facing humanity, I would do it. But I don’t think anyone’s made a remotely compelling case that divestment is a demonstrably effective step toward changing the behavior of corporations in our society.

O’Leary: There’s an argument that, if Williams divests, it sends an important signal to the world, even if it’s symbolic.

Falk: What’s the cost of a statement whose value is in its symbolism? What’s the cost of the ability to support the financial aid program or faculty relative to the impact of that symbolism? It’s an assessment that we are morally obligated to make. The only way to divest fully would be to change fundamentally the way Collette and her team invest the endowment—to give up the outperformance we’ve had over the past decade. As she said, the cost would be the entire financial aid budget over the last 10 years—and over the next 10 years. Choosing to invest in the sustainability of the campus and in the academic program is a more powerful statement about the college’s values. (Read the statement by the board of trustees and President Falk on climate change.)

O’Leary: The holdings in fossil fuels are in commingled funds; they’re not direct investments. What about putting those holdings behind renewables instead?

Chilton: That’s exactly what we’re doing with some of our funds. The investment office spent the last year mapping the market. We changed our policy statement to reflect the fact that we’re going to be doing impact investing. We sent a letter to all our investment managers asking them to keep in mind—to the extent that they can—when they’re investing that the college cares deeply about sustainability. That’s the only time in my 10 years here that we’ve sent a letter to every one of our investment managers on any topic. We recommended our first investment in alternative energy to the investment committee in September, and the committee approved it. Our average period to research and investigate any investment tends to be one year, whether it’s impact investing, venture or anything else. This money is incredibly important. It’s not ours. It belongs to everybody who touches Williams.

O’Leary: The planned investments in sustainability will total about $50 million over the next five years.

Falk: Yes. So that’s not $50 million in endowment. That’s the total investment in buildings, academics, community projects and impact investment.

O’Leary: Is $50 million enough?

Falk: Over the next five years, we believe $50 million is the amount of money we can spend responsibly. At the end of five years, we’re not finished. We’re going to look at the landscape of local renewable energy, at the academic program, at impact investment, at the college’s financial position and make decisions from there. However, I do not want to cut into the financial aid program in order to address sustainability. As important as climate change is, it’s not more important than access to Williams.

O’Leary: What is the biggest miscommunication between the college and its stakeholders when it comes to the endowment?

Falk: It’s the notion that the endowment is a large, static pool of money rather than a dynamic engine for everything we do here that is in our mission. It’s the impression that it’s a savings account—that we’re saving for later. But, in fact, the endowment works every single day to allow Williams to be the institution that it is. If we want to be the same college in 10, 20, 30 or 40 years, we have to earn on the endowment. If we want to do more, we need to grow it. The endowment is like your retirement account, but you never die. It’s the engine of this college, and we are so fortunate that for 200 years people have been contributing to it. It gives us a profound responsibility to steward it and use it to do the good things we do at Williams.

Love: The endowment allows us to bring talented students to campus. It allows us to put them in classrooms and laboratories with professors. It allows us to have tutorials. Everything that is part of our institutional identity is coming from the endowment.

Falk: There’s a question of responsibility—my responsibility—having come to a place that has so much. I don’t believe my responsibility is to give it away, because it was given to the college by people who wanted to support Williams. But the responsibilities are twofold. The first is to make this place as accessible as it can be to people from every corner of society. The second is to educate students in a way that allows them to go off and be effective in the world—to magnify their impact. The number of alumni doing remarkable things is far disproportionate relative to the size of each graduating class. Meaning, the scale of the impact Williams has on the world is not set by just 550 students a year. The scale has to be an impact worthy of a $2.3 billion endowment.