Scott Malpass leads university investments in light of Catholic mission

 

According to a September 23 news release authored by university spokesman Dennis Brown, the University of Notre Dame endowment returned 19.7 percent for the year ending June 30.

With an initial endowment value of $8.3 billion as of June 30, 2013, this percentage growth means that the endowment grew by $1.5 billion to $9.8 billion.  While Notre Dame’s endowment still lags far behind those of Harvard and Yale, the university’s investment pool grew from $3.5 billion in 2004 to its current value, an increase in value of 12.5 percent per year, and is now ranked 12th among all American universities.

According to Frances Denmark at the Institutional Investor, “Today a full 45 percent of the Notre Dame portfolio is invested in private equity, real estate and other funds with ten-year (contracts), and an additional 25 percent is in hedge funds with (contracts) that range from one to five years.”  The Investment Office’s strategy appears to be one of long-term growth.

Indeed, during the 25 years since Notre Dame appointed Chief Investment Officer Scott Malpass to oversee the then $425 million endowment, the university has transformed itself from a good school in Michiana to the premier Catholic university in America.

Perhaps what is most surprising financially, though, is that the Notre Dame endowment has, according to Brown’s press release, “substantially outperformed its internal strategic policy portfolio, representing a passively indexed portfolio of similar assets.”

According to the widely accepted financial investment theory, passively traded funds should return more ‘bang for the buck’ than assets with similar risk and contact characteristics.  Notre Dame’s Investment Office seems to be thoroughly discarding that general trend.

Further, as Malpass told the Rover, “Our donors want us to earn a competitive return but in a way that reflects our position as a Catholic university.”  In other words, not only is the university’s Investment Office interested in enhancing its long-term outcomes, but it is also focused on maintaining its unique identity as a central office of one of America’s leading Catholic institutions.

Still, the question remains: Is the Investment Office actually supporting the mission of the university to “provide a forum where, through free inquiry and open discussion, the various lines of Catholic thought may intersect with all the forms of knowledge found in the arts, sciences, professions, and every other area of human scholarship and creativity”?

Professor of Finance Martijn Cremers shared his thoughts with the Rover: “Having such a large endowment is a great blessing and a great responsibility … The investment management office deserves our gratitude for what seems good stewardship.”

Yet Cremers also recognized that “the endowment is managed in a way that is relatively obscure, through external fund managers that are not publicized.”  While the Investment Office claims to be investing with Catholic principles in mind, the general Notre Dame population is left unaware of the true allocation of invested endowment funds.

“Endowment growth is great unless we find that it is growing for socially (or ethically) unacceptable reasons and should help fund university operations and keep costs down for students,” Professor of Economics Eric Sims explained to the Rover.  However, like Cremers, Sims tempered his enthusiasm by adding that the university is not always entirely clear in its investment or distribution of endowment returns.

Malpass, however, reaffirmed his office’s commitment to the highest ideals of morality, ethics, and Notre Dame’s mission: “The Notre Dame endowment pool is a collection of over 5,000 endowment funds established by Notre Dame alumni and others to support various activities on campus.  Over 30% of the funds support financial aid for needy students, and the rest is (used) for endowed faculty chairholders, various student clubs and activities, centers and institutes, campus ministry, and academic departments, (among others).”

“To whom much is given, much will be asked,” noted Cremers.  If the University of Notre Dame is to maintain its place as a proud Catholic institution of higher learning striving to serve the needs of the poor and support its students, faculty, and staff in an ethical manner, Malpass and the staff of the Investment Office must make wise, prudential decisions undertaken with only the needs and interests of the university in mind.

Dennis Brown declined to comment.

 

Kenny Zesso is a junior economics and mathematics major interested in seeing the university thrive, having discussions about reality and fiction, and not failing out of school.  Let’s just say he’s finding the first two easiest.  Contact him at kzessoho@nd.edu.