In keeping with the endowment’s infinite time horizon, Middlebury takes a long-term orientation in its capital allocation and portfolio management decisions.
Maximizing Growth. Minimizing Risk.
The primary investment objective of the endowment is to generate, on average and over time, inflation-adjusted gains from investment returns that at least match distributions to the institution. The investment strategy is designed to meet this objective. The spending distribution policy is a means to deliver financial support to the operating budget while also ensuring some level of protection from the volatility of the capital markets.
Middlebury’s spending policy governs the rate at which funds from the endowment are released; this protects the value of the endowment and maximizes the amount reinvested for the future. The annual spending distribution rate from endowment earnings is calculated each year on a 12-quarter average. This smoothing technique helps to ensure stability from endowment support. Trustees have set the spend rate at no more than 5 percent of endowment earnings to protect the net value from loss over the long term.
The endowment’s long-term horizon allows for a large allocation to equity-oriented strategies, where the potential for long-term capital appreciation exists.
Other assets, which include but are not limited to hedging, derivative, or diversification options, are also used to reduce risk and overall portfolio volatility. The endowment is diversified across asset classes and managers. Each separate asset class plays an important role in contributing to the expected level of return and risk in the portfolio.
Assets in the portfolio are allocated as outlined in this chart, according to a guiding principle that carefully combines conservative investments with growth opportunities.
The endowment is managed to maximize annualized returns, net all costs, over rolling 10-year periods, while adhering to the stated risk parameters. It is deployed in a manner that seeks to avoid 25 percent or greater peak-to-trough declines in inflation-adjusted unit value, excluding spending.
The endowment is structured to avoid annualized shortfalls exceeding 3 percent, relative to the mean return of endowments reporting to the National Association of College and Universities Business Officers (NACUBO), over rolling 10-year periods.
152 Maple Street
Marble Works, Suite 102
Middlebury, VT 05753