Spending policies are always vital to the financial health of large institutional investors including colleges and universities. And the COVID-19 pandemic added even more pressure on these institutions to find new ways to satisfy their spending needs. One of our higher ed clients experienced this first hand. A university in New England was looking to cover its operating needs without regularly tapping into its endowment fund. We dig into their ability to make nimble decisions.
Prior to the pandemic, the university was midway through the process of changing from a college to a university–a conversion that creates additional costs up front, as well as ongoing maintenance costs. In July 2019, our team recommended carving out 12% of the university’s endowment portfolio (comprised of short-term, high quality bonds and money market funds) for a spending immunization strategy to manage its liquidity needs and cover both the costs of the transition and its spending target. With this carve out, rather than regularly tapping into the endowment, the university would only have to tap the endowment for the initial carve out and rebalancing going forward. The spending immunization strategy was originally intended to span two years, but in the fall of 2019, the university decided to start spending down the strategy and cover the costs using other resources.
A pivot post COVID
In early 2020, following a discussion with our team, the university decided to again carve out a spending immunization strategy to satisfy liquidity needs and manage operating costs. In April 2020, we agreed to rebalance the university’s portfolio following the March volatility stemming from COVID-19 and its subsequent global economic and business impact. While this likely added to the existing strain on higher education finances, the university reduced the risk of the overall portfolio through the spending immunization strategy. In the first quarter of 2020, the portfolio experienced better risk mitigation than the prior allocation.
It’s no secret that COVID-19 has impacted the operating model of higher education institutions. Luckily, many are already accustomed to reevaluating their spending and liquidity strategy, and in the best case, able to accommodate timely changes. As an OCIO, we work with each client to understand their financial situation and employ a nimble approach to investment decision making to meet evolving needs. This approach allowed SEI to work with the university to shift strategy as the economic environment and the university’s goals changed.
This case study describes the attributes of a specific client that SEI has determined is comparable based on objective criteria, including organizational goals, asset size and industry sector. Any discussion of specific asset allocations is intended to help clients understand SEI’s customized investment approach, and should not be regarded as a recommendation. Information concerning SEI’s recommendations over the last year is available on request. The information expressed herein represents the current, good faith views of SEI at the time of original publication, and has not been updated.
Past performance is not indicative of future results. You should not assume that future recommendations will be as profitable or will equal the performance of past recommendations.
This presentation is provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company. The material included herein is based on the views of SIMC. Statements that are not factual in nature, including opinions, projections and estimates, assume certain economic conditions and industry developments and constitute only current opinions that are subject to change without notice. Nothing herein is intended to be a forecast of future events, or a guarantee of future results. This presentation should not be relied upon by the reader as research or investment advice (unless SIMC has otherwise separately entered into a written agreement for the provision of investment advice).
There are risks involved with investing including loss of principal. There is no assurance that the objectives of any strategy or fund will be achieved or will be successful. No investment strategy, including diversification, can protect against market risk or loss. Current and future portfolio holdings are subject to risk. Past performance does not guarantee future results.
Mary Jane (MJ) Bobyock is managing director for SEI Institutional Group.
References and Resources
- Learn more about SEI’s commitment to higher education institutions.
- OCIO Search and Hiring Process: Two higher education institutional review how they moved from traditional consulting to the OCIO model
- Nonprofit Committee Connection: Your tie to the latest topics on finance, fundraising, governance and more
With Thanks to AGB Sustaining Champion : SEI Institutional Group
Mary Jane (MJ) Bobyock, CFA
SEI Institutional Group
Opinions expressed in AGB blogs are those of the authors and not necessarily those of the institutions that employ them or of AGB.