Courtesy of Washington University Investment Management Company

Washington University’s $12.5 billion endowment currently sits as the 11th-largest in the nation, according to U.S. News & World Report. The endowment and Managed Endowment Pool (MEP) — which includes most of WashU’s endowed funds and other long-term operating assets — is managed by the Washington University Investment Management Company (WUIMC), led by Chief Investment Officer Scott L. Wilson. 

Despite posting a 2.3% loss in the fiscal year 2023, the endowment has posted returns of 9.4% over the last 10 years — beating the Cambridge Associates’ median return for U.S. college and university endowments by 2.2% over the same time period. In 2023, the endowment had its largest payout, directing $570 million to WashU’s annual operating budget, which is used to fund aspects of the University, including facility maintenance and employee pay.

Wilson managed the endowment at Grinnell College before joining WUIMC in 2017. Prior to managing higher-education endowments, Wilson was Head of Rates Option Trading for Barclays Capital Japan and served in various roles at Bank of America.

Student Life sat down with Wilson to discuss WUIMC’s work, their investment strategies, and the role his office plays at WashU.

This interview has been edited for length and clarity.

Student Life (SL): Could you briefly describe what WUIMC does and what its role is at WashU?

Scott Wilson (SW): The Investment Management Company is responsible for investing the assets within the endowment. We’re overseen by the WUIMC Board of Directors that approve our strategy, manage our risk tolerances, approve our budget, and set our asset allocation, which are the types of securities, geographies, and asset classes that we invest in. [The WUIMC Board of Directors includes] five independent directors, the chancellor of the University, and the chair of the Washington University Board.

SL: When it comes to individual gifts, last year 63% of them were “donor-restricted.” What does that mean?

SW: It means you can only use the proceeds for the payout from those gifts to support the specific cause that the donor intended.

SL: Last year, WUIMC paid out $570 million. How do you make the determination of how much will be paid into the operating budget, and do you have any say over where those funds are allocated?

SW: [The Board looks] looks at the last five years’ average market value of the endowment and then typically pays out between 4% and 5% of that average value. Again, all of those restricted endowments have to be used to fund the specific purpose that was endowed, so [they] legally can’t be used for general operating-budget purposes. So if that specific purpose is a research program for the medical school, or need-based financial aid for a student from Missouri, you can only use those funds to support whatever the donor intended. 

SL: Despite posting a loss last year, the endowment has outperformed the national median for higher-education endowments. What do you attribute to that success over the last 10-20 years?

SW: Well, I’ve only been here for seven years, and truth be told, when I started, our 10-year performance was really bad. We had underperformed the average endowment, and certainly had underperformed the average endowment within our peer group, [which consists of the top 20 private-university endowments]. Essentially, in 2017 we completely turned over almost the entire portfolio. We went from average [and] below-average external partners to what I would say are a really high-quality set of financial partners who find interesting and unique investments that we can strategically back with additional capital.

SL: The annual report mentions the endowment and the Managed Endowment Pool (MEP). Can you explain what these two things are and how they are different from the annual operating budget of the University?

SW: The payout from the endowment and the MEP go into the operating budget, but that’s outside of our sphere of influence. The WUIMC Board approves a payout every year. [The endowment] is made up of thousands of individual gift agreements that are codified in an actual legal document called a gift agreement, where a donor has given money for some cause that they want to support in perpetuity — for the entire life of the institution. When we collate all those and collect them, we call that the endowment. Now there is also what we call quasi-endowment, which is essentially reserves or excess operating cash, savings, or Board-designated funds that they’ve moved to be managed alongside the endowment. From our standpoint, it’s a single unitized pool of capital, but technically they are different pools of money.

SL: You mentioned in last year’s annual report that you encourage your team to pursue themes and concepts that are idiosyncratic compared to the rest of the market. How do you go about finding idiosyncratic themes and deciding whether to invest in them?

SW: Yeah, so when we say idiosyncratic, what we mean is it’s uncorrelated to other investments we have in the portfolio. If you looked in the portfolio and looked at our biggest positions, you’d find a U.S. aerospace and telecommunications company, a large biotech company, [a] Southeast Asian gaming and e-commerce company. We look at those, and although they’re all equity investments, 20 years from now those investments should have very independent outcomes. They should be very uncorrelated. Generally, we find our investments through our external investment partners. The bulk of the endowment is outsourced to partners on the ground investing in various types of geographies and different types of securities, and we spend a lot of our time actually on the ground with them, trying to understand what’s in their portfolio. And we call those co-investments, so we have a decent chunk of the endowment that’s in these types of co-investments with our various partners across the globe. 

SL: Some students have called for WashU to divest from certain positions, including Boeing. How does your office approach individual investments, including the investment in Boeing?

SW: We haven’t had an investment in Boeing since I’ve been at WashU, and we’ve certainly never had one that we directly control. I’m not sure where that came from. Absolutely, we would invest in Boeing if we thought it was a good investment, but those decisions are typically initiated by our external investment partners. The divestment decision isn’t made at our level. That’s a decision that comes through the WUIMC Board and the chancellor of the University and the full Board of the University. So from our standpoint, we don’t positively or negatively screen for ESG [environmental, societal, and governance] reasons, but we do factor in all sorts of ESG factors in our investment decisions. So I would say it’s more of a lens through which we view the world — we don’t consider companies that have very poor ESG practices to be good and long-term investments, because that’s not sustainable in the world that we live in. 

Student Life reached out to Wilson for clarification that WUIMC has not indirectly invested in Boeing through ETFs, mutual funds, or any other externally managed funds. Wilson responded that, “to the best of my knowledge, we don’t currently have any Boeing. We do not have complete transparency for every fund we are invested in, but it’s generally good.”

SL: Did posting a loss last year cause any concern, or is that just more generally tied to how the market performed last year?

SW: No. We know we have to take capital-market risk and expect to have good and bad years. If you assume we have a payout of 5%, inflation is 3% to 4% and then we need real growth on top of that. That gives us a target return of 9% to 10% or more over the course of a business cycle, which is generally the boom-bust cycle of the broader economy. So the only way to generate that type of return is to be in long-duration risk assets (equity-like assets). The nature of financial markets is [that] you’re going to have these periods of pessimism and euphoria, and so you expect markets to go up and down, and not every market goes up and down in tandem. That is why we have a very diversified portfolio. But in general, we take broad capital-market risk and expect to have some years where returns are negative. So, when markets are down — and last year, it was mostly private-equity markets that were down — then we expect a negative year. There was an asset bubble in private markets in 2021 where the tech sector priced up-north of 100% and we had a 65% return, and then the last two years, we have seen those markets come back to Earth and better reflect economic reality. So in some sense, 2021 was the party, and over the next few years the punch bowl was taken away. We knew that was coming. Because they are private investments locked up in private partnerships, there is very little ability to sell or even hedge those assets. 

SL: WUIMC has three benchmarks for success: annual payout, inflation, and real growth. How do you prioritize those benchmarks for any given fiscal year?

SW: We don’t really focus on individual benchmarks, and certainly not over a short time frame like one fiscal year. Very broadly, we think about risk in two high-level buckets. We have short-term liquidity risk, which is our ability to make payments to the University so they can fund their operating budget on a yearly basis. Then we have what we would call “long-term growth risk”: our ability to grow the value of the endowment by at least the payout plus inflation, which preserves the purchasing power of the endowment. Otherwise, our real purchasing power is systematically declining over time. Our mandate is to increase the purchasing power for future generations of faculty, students, and staff. 

SL: WashU, unlike other investors in funds, is in it for the long run. How does that influence WUIMC’s risk tolerances when it comes to investing?

SW: It affects the type of investments we look for because, ideally, we find really great investments that we can hold for the next 20 years [that] will provide a really good return over that 20-year period, even if we know it’s not going to be completely linear. And so we look for partners who we think have a similarly long time-horizon. In terms of type of risk, it means we can suffer a lot of short-term volatility for an investment that we think will perform really well over very long periods of time. We can also tolerate a lot more illiquidity risk. So we’re happy to be in public equity or private equity, or in investments that we don’t think will really pay off [until] 10 or 20 years [later]. That could be a long-duration real-estate investment or a construction project that won’t be completed for 5-10 years, knowing that the payout at the end of that 10-year period will be worth us waiting for the investment to mature.

SL: Students have expressed the belief that the endowment isn’t necessarily always transparent. What resources would you point students to to better understand how WashU is investing its money?

SW: The best resource is just the Annual Report. Most of our investments are outsourced to these third parties. Most of the time, we’re actually restricted in that we can’t disclose either the underlying holdings of those firms or even who those firms are. Likewise, they can’t disclose that we’re investors. We typically highlight a few of the individual investments in our Annual Report, but you can get a very high-level and thorough overview of what we’re doing [with] the endowment through the Annual Report.

SL: What was your background before entering the world of managing endowments for higher-education organizations?

SW: I certainly didn’t grow up in this part of the investment world. Right after [college], where I was a math and econ major in undergrad, I started my career in investment banking and worked for investment banks in various roles, starting in traditional investment banking and then [moving to] equity research. Shortly after that, I moved over into sales and trading and spent a good portion of my career managing a derivatives trading desk mostly in Tokyo, but also [in] London. I started working for a smaller endowment about 15 years ago, ultimately became Chief Investment Officer at Grinnell College, and came to WashU in 2017.

SL: What led you to managing university endowments? 

SW: From my standpoint, if you really like investing, managing a university endowment is the best job you can get. You have a pool of capital that supports a really good cause. You’re supporting something that is really meaningful. The world has problems, and it needs people who can go out and solve those problems. You have a super long-term pool of capital that’s big enough to do very interesting things, and, within reason, you have almost no constraints. You can invest in any asset class, any security, anywhere in the world, as long as you can convince your Board and governance committee that what you’re doing is reasonable. From that standpoint, I think it’s one of the most interesting investment jobs you can have. I’m very grateful to have the opportunity to work here.