Endowment: An Interview with Chief Investment Officer Abigail Wattley ’05
On a Thursday evening in September, about 30 students gathered at the Log for pizza and conversation with Williams’ Chief Investment Officer Abigail Wattley ’05. The students arrived full of questions—the kinds news reporters, politicians, pundits and even alumni have been asking about college and university endowments. Over the course of 90 minutes, Wattley says, “Students really demonstrated their intellectual curiosity.”
They wanted to understand how big the endowment is—$3.7 billion as of June 30. Why it is important—more than half of the college’s annual operating budget is funded by the endowment, covering everything from faculty salaries to tutorials to internships to financial aid. And why it’s invested the way it is. More on that later.
Wattley’s own interest in college finances was sparked as a student, when she took a tutorial on higher education economics. After working for a few years at the global investment firm Cambridge Associates, she joined the Williams Investment Office in 2007, left for two years to earn a master’s in business administration at Harvard and then returned. She was named CIO last year. Along with a team of 10 staff, and with advice and oversight from the Board of Trustees Investment Committee and three advisory committees, Wattley oversees putting the college’s investment dollars to work.
Williams’ investment approach has never been a secret, Wattley says. Annual reports dating to 2009 are readily available online, and the Investment Office has long done outreach like the Log dinner to share information with students and the broader Williams community. Yet questions remain.
So when Williams Magazine asked Wattley to answer some of those questions for the fall issue, she was happy to grant an interview with Dennis O’Shea ’77, a longtime Williams volunteer and retired executive director of communications at the Johns Hopkins University. Their conversation has been edited for length and clarity.
Dennis O’Shea ’77: What is an endowment? Why does the college have one, and what does it do?
Abigail Wattley ’05: The endowment is one of the three primary sources of operating funds for the college. The others are tuition revenue and the alumni and parents funds. The endowment itself is a permanent collection of gifts made to the institution over a very long period. We have more than 1,800 different endowments in our one large pool. Most have a specific intended purpose, whether it’s for a certain professorship or scholarship fund. These are gifts that friends of the institution have made, expecting that the money is going to be there to support Williams in perpetuity. Our job is to be responsible stewards of those gifts. We try to maximize returns for today while also being mindful of the generations to come after us and the resources they will need.
O’Shea: So you invest all this money and, most years, anyway, hope that investment yields a good return. Last year, about $178 million went from the endowment to the college operating budget. Can President Mandel do anything she wants with it?
Wattley: No. There are donor restrictions on the majority of these endowed funds, so they can’t just be spent on anything we want. Also, there is a very robust annual budget planning process, led by the college provost and the vice president for finance and operations, that pulls together all of the many important priorities of the college and makes sure it all fits together. The budget is ultimately approved by the trustees. So there are a lot of controls to ensure that the endowments are being used for the purposes for which they’re intended, that the highest-priority initiatives are supported and that we’re spending an appropriate amount of money in any given year.
O’Shea: How does the college decide how much comes out of the endowment and goes into the operating budget?
Wattley: About 5% of the endowment is spent on an annual basis. The rule at Williams is that we can spend 5% of the trailing 12-quarter average market value of the endowment.
O’Shea: Couldn’t Williams take more money out each year and cut tuition?
Wattley: It’s important to remember that, just by virtue of the fact that we’re supporting more than 50% of the operating budget with the endowment, Williams is doing a tremendous amount to lower the cost of tuition. Look at it this way: Last year, the college spent $135,500 on each student. So every student received a grant of at least $50,000 thanks to the endowment as well as annual giving. For families with very few financial resources to help pay for college, Williams covered the entire cost. We’re not being overly conservative with spending from the endowment. We’re trying to maximize the draw, but doing any more could be detrimental to the future.
O’Shea: So “intergenerational equity”—being fair to today and fair to tomorrow at the same time.
Wattley: Exactly. It’s very easy for us to just focus on today and not think about future generations. But this idea that we have a duty to them is really, really powerful.
O’Shea: What is your job like day to day? Do you analyze stocks and decide what the college should buy?
Wattley: I don’t. My colleagues and I spend our time finding the right partners outside of the college to invest our funds for us. The Investment Office is like the general manager of a baseball team. We aren’t actually on the field playing a specific position. We are responsible for identifying talent and bringing that talent onto the team to play for Williams. The “talent” here refers to outside experts who make key investment decisions on our behalf. We call them “investment managers,” which I realize confuses the baseball metaphor. We spend a lot of time meeting with these managers, and we analyze data and assess how all of these managers fit together to create the best portfolio possible. Our job is to very closely monitor the “talent” and continuously be on the lookout for the next great recruits.
O’Shea: And these investment managers are not college employees. They are out there in the world, combining money from Williams and other investors. Each then takes the pooled money and makes the kinds of investments that they specialize in.
Wattley: That’s an important point. Selecting great investment managers is how we achieve added value over market returns. The outside managers combine our money with money from their other clients. This gives us access to investment opportunities that Williams likely couldn’t reach on our own. That enhances our potential returns.
O’Shea: So through these managers, the college has money not just in stocks but also in real estate, venture capital, private equity and various other forms of investment. Are these risky ways to invest gifts to Williams?
Wattley: If we were only investing in one of those strategies, that would be a risky approach. That one strategy we chose might, some years, suffer losses. But we’re building a diversified portfolio. We are trying to identify high integrity, smart, motivated investors to manage a component of each of those asset classes.
O’Shea: So by diversifying, you’re assuming different kinds of risk that pay off in different ways at different times. And how has the endowment been doing?
Wattley: Great. Our return objective is 5% real, or 5% net of inflation. In Fiscal Year 2024, the endowment returned 10.2%, a very strong return. But going back to the idea that the endowment is here for perpetuity, we focus on long-term results. Our average return over the past 10 years has been 9.2%. Obviously, any given year is not going to look like that. It has been a volatile period. We’ve had some big ups, like Fiscal Year 2021, when we were up over 49%. Then Fiscal Year 2022, we were down. We’re not trying to optimize for any given year. We’re trying to build a track record that over the long term meets that 5% objective, that gets a 5% return or better on top of inflation. This makes up for our spending 5% and ensures the real value of the endowment stays consistent. At 9.2% over the past decade, we’re doing that.
O’Shea: I was a class agent for years, and I’ve heard classmates say: “I don’t give to the Alumni Fund because Williams already has so much money.” What’s the difference between the endowment and the annual Alumni Fund and Parents Fund—and do we really need annual giving?
Wattley: We absolutely need it. I’m also a class agent, so I’ve heard similar questions. Much of the spending from the endowment is already accounted for, given the restricted purpose of any one particular endowment gift. The alumni and parents funds are mission-critical for doing other really important things, like paying our utility bills or operating student health services—things that maybe there isn’t an endowment for but that are central to operating the college. The annual funds also help support things that are not fully endowed, like financial aid, faculty support or athletics and recreation. Just because Williams has a large endowment doesn’t mean it doesn’t also need these annual gifts from alumni and friends. They account for almost 10% of the operating budget.
O’Shea: There are members of the Williams community who believe strongly and in a very principled way that institutional investments are vehicles to make statements and effect change on issues they care about, like the environment, peace and human rights. This has been true since I was a student. What’s your take on divestment?
Wattley: Williams has a specific mission, to educate students, to provide a forum for students and professors to engage in deep learning, which might include having complicated, difficult discussions. From apartheid in the 1970s to climate change to the conflict today in Israel and Gaza, these are important issues that people care deeply about. I recognize why people want to see concern over these issues reflected in the way the college operates, including in our endowment strategy. But the endowment has a specific mission, too: to sustain Williams in perpetuity. Adding other imperatives would detract from that focus.
O’Shea: Does the college have an iron-clad policy against divestment?
Wattley: No. Ultimately, all investment decisions are trustee-level decisions. The role of the Investment Office is to execute the vision and the strategy that the Investment Committee and Board of Trustees set for us. The college has had—going back to the late 1970s—an advisory committee on shareholder responsibility, which considers divestment proposals. Its recommendations go to the Investment Committee and the trustees for consideration.
O’Shea: Outright divestment aside, what role do social concerns play in your decisions about which outside managers to invest with?
Wattley: We in the Investment Office are Williams employees aligned with the college. We are trying to make the absolute best decisions possible optimizing around many, many, many different factors. Of course we factor environmental, social and governance risks into our decisions. We don’t have a specific list of things that we’re not going to invest in. But that doesn’t mean we’re not taking into account that investing in something ultimately may not be sustainable in the long term or not a great financial decision because of these ESG factors.
O’Shea: The other side of the divestment coin is impact investing. A key pillar of the college’s 2021 Strategic Plan is sustainability. In line with that plan, you are tasked with looking for effective investments in climate change mitigation. Can you talk about that?
Wattley: Impact investing for Williams began in 2015. We are focused on identifying and making investments in funds that, one, have a market rate of return, and, two, have measurable impact on the reduction of global greenhouse gases. We’ve met hundreds of managers in the sector. We have committed $70 million in funds focused on this area. It’s been a successful program. We have work to do, but the funds have generated good returns and a measurable impact on greenhouse gas reduction.
O’Shea: Your office is in Boston, but you work hard to maintain connections with campus, particularly with students.
Wattley: We are really proud of that work. One of the most rewarding things we do is engage students. We have three programs that date back to 2008. One is a paid summer internship for two students here in Boston. We also offer a Winter Study class every year. It’s one of my favorite things when I get to campus in January to teach. The students are always really engaged. They ask great questions. They’re prepared. They’re thoughtful. Then we have a full-time analyst program, hiring one graduating senior two out of every three years to work in our office for a three-year period.
O’Shea: And you’ve had students from these programs go on to significant positions in the industry.
Wattley: Yes. We’ve done a nice job building a pipeline into asset management.
O’Shea: What are some of the informal ways you encounter students?
Wattley: One of my favorite things this fall was the pizza dinner at the Log. We could easily have been there for three hours, and the students wouldn’t have run out of questions. Every student who emails us and asks to talk—we take a meeting. I would say, since the start of this school year, we’ve engaged with more than 200 students. And it’s only late October.
O’Shea: Through these student programs, your office has made it a priority to open what has traditionally been a white, male industry to people who can thrive in investing but haven’t seen themselves there before. Why is diversity important to you?
Wattley: Collette Chilton (Williams’ first CIO) was an important pioneer on this. We continue to follow her lead. Just the fact that she was a woman leading a top endowment in itself was unique. Today, only about 17% of CIOs at the schools with the largest endowments are women. It’s super important that we have diverse perspectives around the table. We look at so many different types of issues on any given day. Bringing really smart people and all those different points of view to bear on an issue is extraordinarily helpful. We have a long way to go, but we see our student programs as one of the key ways in which we are trying to change our industry over time.
To learn more about Williams College’s endowment, visit investment.williams.edu.
Read the 2024 Annual Investment Report.
Photo at top: Williams’ Investment Office in Boston.
All data as of Fiscal Year 2024 and supplied by the Williams College Investment Office.
