The MIT endowment supports the Institute through the returns generated from investing MIT’s financial resources. Seth Alexander, president of the MIT Investment Management Company (MITIMCo), works to ensure that the assets in the MIT endowment are working as hard as possible for the benefit of the Institute and its stakeholders. Alexander spoke with us about how the endowment works and how an endowed gift can provide income for donors during their lifetime while also supporting MIT.

How did the MIT endowment perform over the past 10 years? How does that compare to endow­ments at other educational institutions?

SA: Pool A, MIT’s primary investment pool, has earned strong returns over the past 10 years, earning 8.6% per annum. The value of the endow­ment increased from $7.9 billion at the start of the decade to $16.4 billion at the end of fiscal year 2018. The preliminary results of the Cambridge Median indicate that MIT outperformed its peers by approximately 2.9% per annum over this time pe­riod. The Cambridge Me­dian is the median return of college and university endowment pools tracked by Cambridge Associates.

What is the investment strategy for the endowment?

SA: The primary component of our investment strategy is to develop strong long-term partnerships with exceptional external investment managers around the world. To earn high investment returns, we might want to invest in arenas as diverse as startup companies in China, the stock market in Germany, and real estate in Silicon Valley. Rather than attempt to hire in-house experts in all of these areas, we instead seek to identify the world’s best investors in each area and partner with them. In this way, we are able to work with the people who have the best competitive advantages in executing their investments given their specialized insights and deep market knowledge. By allocating capital to over 80 external managers, we are able to create a portfolio that is both focused on high returns and well diversified.

How does the endowment help benefit MIT’s planned giving program?

SA: When donors set up planned giving vehicles and transfer assets to be managed by MIT, those funds can earn the endowment rate of return and donors can ben­efit from those returns. In a charitable remainder trust, for example, a percentage of the market value of the investment is paid out to the donor for life. At the end of the trust, the remaining assets pass as a gift to MIT. These gifts provide much-needed support to the Institute by paying for professorships, fellowships, and scholarships. MIT also supports its talented community of faculty, students, and researchers by providing them with the spaces and resources they need to explore and innovate.

How much is spent from the endowment each year?

SA: We believe that MIT’s educational mission and research capabilities will be as important for future generations as they are today. As a result, the Institute spends from the endowment only what it believes it can earn in investment returns on a long-term basis. Currently, approximately 5% of the market value is distributed for spending each year.

How is MITIMCo’s approach to endowment management different from other universities and private wealth management firms?

SA: While the core philosophy of our investment approach is similar to other long-term oriented insti­tutional investors, differences in the way we execute may cause MIT’s portfolio to diverge from other port­folios. For example, we tend to be less benchmark oriented than other investors. We also are willing to invest much earlier with managers than many others. In fact, in roughly half our new investments in recent years, MIT was the first institutional investor.