Divestment Presents Challenges

Pomona College invests 92.2 percent of its investment pool through commingled fund vehicles, according to information in a presentation given by Treasurer and Vice President of Pomona Karen Sisson at the meeting with members of the Board of Trustees on Thursday.

Pitzer’s Mutual Funds

Yuet Lee, Treasurer and Vice President of Pitzer College, explained, “We have no direct investment in any specific company, in fossil fuel or any other type of company … our investments are in mutual funds.”

Mutual funds involve the pooling of capital from several investors into one fund. The portfolio manager then makes investment decisions. The portfolio of one mutual fund includes a variety of investments, and a variety of assets, including stocks, bonds, or currencies.

“If you look at a mutual fund, there are hundreds to thousands of companies that a mutual fund can invest in. We do not go into every company that a mutual fund is investing in,” Lee said.

This process is not as simple as investing in one mutual fund under the guidance of one financial adviser. Pitzer is involved in over 100 mutual funds, Lee estimated.

Pomona’s Commingled Funds

“I don’t believe anybody goes into it and looks at every single company that a mutual fund is invested in in that kind of detail,” Lee said.

A commingled fund is similar to a mutual fund, but not open to individual investors and not heavily regulated by the Securities and Exchange Commission. Sisson emphasized that Pomona is invested in multiple funds. According to Sisson, Pomona has “over 260 fund managers.”

Sisson said that while Pomona, through Cambridge Associates, selects the money manager, the manager then implements a strategy in selecting the stocks or other assets.

“At any given moment in time, we could take a snapshot of the portfolio, but it could change the next day,” Sisson said.

“It’s very hard, because we have many different investment advisers and each of their strategies is different, and so we could not provide a list of what we invest in now, and of course tomorrow would be different,” President David Oxtoby said in the meeting with students.

Successful Investment Strategies

Pomona College’s investment pool has grown by more than 750 percent in the last 25 years, according to Sisson’s presentation, from $0.21 billion in 1987 to $1.83 billion in 2012, outperforming the S&P 500—the index that indicates the overall performance of the stock market—by an “average of 2.2 percent annually over that same timeframe.”

Sisson argues that determining what each portfolio contains is often not feasible.

“Even though we do have some funds that are dedicated specifically to stocks, they may be held for a day or a week or two months or a year, so our holdings are changing because we have selected these managers because we believe through the advice and due diligence of Cambridge Associates, who is our investment consultant, that these managers have come up with strategies and models that consistently outperform the market,” she said.

Challenges of Divesting

Lee and Sisson said they were requesting that their financial consultants report back to the colleges with more information on the contents of the funds.

“We asked the investment consultants to look at our portfolio to give us an idea of which one of these funds have investments in fossil fuels,” Lee said. “Just as we can buy into a mutual fund, we can sell out of that. But what would the impact of that be in terms of the investment strategy that is already in place?” Lee asked.

Sisson explained that Pomona is also in the information-gathering stage of the process.

“We would have to look at our consultants and say, ‘Can you look at a range of different scenarios and try to help us quantify what the impact would be?’ because we really don’t know. That hasn’t been done yet,” Sisson said.

“To ensure zero exposure to fossil fuel companies, the college would need to liquidate virtually its entire portfolio and start from scratch,” Sisson said.

Lee and Sisson said they were requesting that their financial consultants report back to the colleges with more information on the contents of the funds.

Looking Forward

Lee predicts that the information gathered from the consultants will be discussed by the investment committee of the Board of Trustees in their meeting in May. Similarly, at Pomona, Sisson said that the chair of the investment committee and Allison Brown, a member of the committee who met with students on campus last week to discuss divestment, had committed to having a discussion with the rest of the committee and possibly with the full board at some point leading up to the next meeting in May.

In the past, Pomona implemented a screen for companies that derived more than 25 percent of their income from tobacco.

“The portfolio now is just so much more sophisticated,” Sisson said. “One of the things about electronic technology is that you can day-trade a stock. You might have a manager who holds it in the morning and sells it in the afternoon; it’s a very different form of investing than [what] was happening twenty years ago.”

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