Unlike a growing number of educational institutions at both the high school and college level, Deerfield does not have strict regulations in place to consider social, environmental, or other concerns in its investments, leaving many to wonder if Deerfield should be ethically responsible for how it chooses to invest its $622 million endowment. However, today’s investment landscape is shifting so that an investor can gain significant returns while also investing ethically.
“A fair and legitimate question to ask of any endowment or any institutional investor is, ‘How are you using the endowment that you have to help in this effort to achieve a sustainable economy and a future for our children and grandchildren?’” said Ryan Martel ’99. Martel works at Ceres, a non- profit organization that works with companies and investors to promote sustainability.
In order to address certain ethical concerns, some institutions have instituted Environmental, Social, and Governance investment strategies (ESG), and these have not necessarily been financially harmful. In fact, Martel stated that “people who apply ESG investment strategies to their portfolios tend to see better returns.”
Deerfield’s Chief Financial Officer, Keith Finan declined to name any companies or assets that Deerfield invests in due to confidentiality. Additionally, Deerfield does not directly invest its endowment but works in coordination with multiple investment managers.
He added that “the investment committee’s task is to manage the financial investments the best they can in order to produce the resources that allow the school to function.” He believes that by generating the highest possible returns from investments the money can be used to support students’ education and therefore their leadership.
Head of School Margarita Curtis stated, “The school needs to explore how it can best implement environmental, social, or governance goals through the engagement of our investment managers. An ongoing dialogue between trustees and the managers fosters a clear institutional direction, anchored in our values, while also respecting the flexibility needed to enhance performance.”
Martel said that achieving social impact and environmental sustainability is “going to have to come from investors and investments. People are going to have to be really deliberate with how they make investments.”
He discussed the feasibility for Deerfield to change its investment strategy.
He acknowledged that because Deerfield does not pick individual stocks to invest in, but instead invests with outside managers, “it might be difficult to restructure an investment portfolio around divesting out of a certain thing, like fossil fuels.”
But he stressed that “It’s not impossible. People do it all the time. It’s probably more difficult the bigger investment fund you are, but it’s not something that’s impossible.”
Some universities, such as Harvard, abide by certain ethical investment guidelines. According to a document released by the Harvard Management Company (HMC), Harvard is a signatory of the UN-supported Principles for Responsible Investment, the “world’s leading proponent of responsible investment.” HMC promises to consider ESG factors when investing.
Ethical investing has not been a significant topic of discussion on Deerfield’s campus, although one of the school’s primary missions is global and environmental stewardship. In 2013, students at Phillips Exeter Academy proposed that the trustees consider divesting from fossil fuels. After deliberating, the trustees decided against divestment. They released a statement that said that divestment would be, “difficult and expensive and would likely have a negative impact on manager availability and investment returns.”
Exeter trustees explained that divesting would also be challenging because Exeter’s endowment capital is managed by “several outside fund managers,” similar to Deerfield’s method.
In recent years, many investors who used an ESG filter found that their return were better than without the filter. According to the PRI, 63% of over 2,000 studies since 1970 found a “positive link” between a company’s ESG performance and its financial performance, and only 10% showed a “negative link.”
The new awareness and pressure for responsible investment is clear. The PRI reported that 86% of millennials believe that sustainable investing is more important now than it was five years ago.
Shreyas Sinha ’19 said, “Deerfield is not uncommon in making controversial investments. I think Deerfield has the right to make investments wherever we want, unless we are crossing an extreme line of morality.” He gave the example of child labor as crossing a line.
Kishor Bharadwaj ’19, President of the student-run Investment Club, thinks that “[Deerfield] should set up reasonable standards for ethics when they’re investing.” He clarified that Deerfield “should be reasonable, and not invest in something that will be unsustainable or ruin hundreds and thousands of people’s lives, but at the same time, DA can’t avoid every unethical corner.”
Mason Horton ’19, one of the leaders of Deerfield Young Republicans, stated, “I don’t think that we should try to stop the school from investing in companies that are looking to help the Academy in financial ways. Unfortunately, the world today is run by money and not a moral or ethical code. With this in mind, the school is just doing ‘good business.’” Horton also believes that Deerfield “should be open about” where it is investing money.
Beth Hooker, Sustainability Education Coordinator and Assistant Director of Deerfield’s Center for Service and Global Citizenship, was hesitant to comment directly on Deerfield’s investments, but stated that “ESG investing has been shown to be worthwhile.”
David Miller, Director of the CSGC, acknowledged the nuance of investing. “Some people will say that every food that you buy or eat is a vote, so if you eat meat, that’s helping keep the meat industry alive. Your investments in some ways are not saying you endorse something, but it is helping an industry stay alive,” he said.
“When we [as a nonprofit] make donations to the local community, I think we should be loud about it to our students, so students can see the institution modeling a commitment to the values it’s trying to teach,” Miller said.
Another one of Deerfield’s considerations is that it must have a competitive endowment to keep up with its peer schools, such as Phillips Andover, Phillips Exeter, and St. Paul’s School.
At the end of June 2018, Deerfield’s endowment was $622 million, or approximately $877,000 per student, according to Keith Finan, Associate Head of School for Operations. St. Paul’s School’s $633.3 million endowment breaks down to about $1.15 million per student. Andover’s $1.105 billion endowment averages about 50,000 more dollars per student compared to Deerfield. Exeter’ endowment was $1.25 billion as of June, 2017, the largest of Deerfield’s peers.
He explained that Deerfield’s Investment Committee is comprised of trustees plus three non-trustees, as well as a consultant that helps choose fund managers. Members are chosen based on level of experience, prior success in investment, and familiarity with the stock market. Many of them work or have worked in the financial sector.
The Investment Committee looks to balance and diversify its portfolio. They invest in public and private equities, international stocks, and domestic stocks. 4% of the endowment is allocated to support the operating budget each year. Their goal is to make a return that is at least 5% above inflation, according to Finan. Finan recently presented a report to the Finance Committee to explain how changes in income and expenditure could impact the long-term financial sustainability of the school. The school must consider how each expense may affect financial performance. Finan explained that there are four main factors that impact asset usage rate: size of the student body, tuition increase rate, financial aid, and program expenditures. Even small percentages of such large sums of money can impact one of these four areas. For example, if Deerfield transitions to need- blind admission, it would cost $73 million by 2030 and add 1% to the asset use rate. These impacts would hurt Deerfield’s long-term stability.
He stressed the importance of intergenerational equity. “We try to look at not just the next year or two, but I try to look out ten, fifty, actually even one hundred years in terms of the endowment,” he explained.
Excellent financial management is vital because “costs are rising and we have few ways to make the delivery of our product, [education], more efficient,” said Finan. “Right now, every student at Deerfield gets between a $25,000 to $30,000 scholarship, even if you pay the sticker price,” said Finan. It costs Deerfield about $85,000 to $90,000 dollars per student to run the school for a year.
The endowment provides students with the resources that allow them to reach their full potential, all the way down to the small details. Finan highlighted that Deerfield’s endowment and its management “makes the difference between having an average experience and an exceptional experience.”