Carthage College vs Harvard University

May 25, 2018

Bloomberg Businessweek

From his home office in Charlotte, one of the most successful investors in higher education plies his trade in blissful obscurity. Bill Abt employs no stable of hotshot bond traders. He doesn’t dabble in the fanciest Silicon Valley venture capital funds, hedge funds, or the latest computer-driven brainchildren of Ivy League physicists and mathematicians.

Yet Abt, on behalf of Carthage College, in Kenosha, Wis., has returns that beat Harvard’s $37 billion endowment and most others. In the 10 years through the most recent college fiscal year, ended on June 30, 2017, the former beer company executive racked up a 6.2 percent average annual return, according to the school. That performance is better than 90 percent of his peers, based on data from the National Association of College and University Business Officers. Harvard’s endowment, the nation’s largest, averaged just 4.4 percent a year in the same period, in part because of heavy losses on investments in timber and farmland.


KENOSHA - On the verge of retirement, Bill Abt is now a big man on a small campus.

For years, this former beer company executive quietly guided Carthage College's endowment. He didn't run with the large-college crowd and pour cash into hedge funds or hard assets.

He stuck to the simplicity of using mostly low-cost index funds.

And somebody finally took notice.

In early May, the 71-year-old Abt and his strategy were featured by Bloomberg Businessweek. The article noted that Carthage's returns "beat Harvard’s $37 billion endowment and most others."

In 10 years through June 30, 2017, Carthage reported a 6.2% average annual return. During the same period, the article said, Harvard had a 4.4% average annual return, with results weighed down by losses in timber and farmland.

Carthage's performance was in the top 10% nationwide, according to National Association of College and University Business Officers.

Since the article appeared, Abt has been overwhelmed

"It's been crazy," he said. "Half the people on campus here have emailed me, which is great. I've gotten calls from TV stations, wealth managers. I had a wealth manager ask me if I wanted to go into partnership with him."

He has also been called by foundations seeking advice.

The big idea? Keep it simple

But here's the thing: What Abt advocates isn't new or cutting edge. It's a plain-vanilla investment formula of keeping expenses low and gaining diversification through using mostly index mutual funds. During the current bull market, the second longest in history, that's a winning hand.

Carthage invests in 10 Vanguard mutual funds, with a mix of 90% equities and 10% bonds.

Eighty-percent of Carthage's allocation is in index or passive funds, he said. Carthage uses three actively managed funds.

Why has Abt's formula caused a stir?

"They asked me that question in the Bloomberg article," he said. "And I said, 'Maybe it's too easy.' Sometimes, we have to justify our existence."

Now, before you try this at home, understand a few things.

In the endowment world, Carthage is a minnow. Its endowment is around $120 million. Not bad for a school with some 3,000 students, but far below the billions of dollars stashed in endowments at some colleges and universities. Other endowments add diversification through alternative investments like private equity and hedge funds.

Also, there's the time horizon. Individuals invest for a lifetime. Carthage invests in perpetuity.

"This college is going to be here 150 years from now," he said.

Even Abt admits after a lifetime of work, with different retirement plans and investment options over the years, the endowment portfolio is simpler than his personal portfolio.

Abt's legacy will live on

John Swallow, completing his first year as Carthage's president, has bought into the strategy.

"Until I met him and heard the story, I didn't know that institutions pursued that strategy," he said. "Institutions I've been associated with either had investment committee members of the board choosing investment managers or outsourced to a firm that would invest in money managers. I had not seen this model."

And what does he think of the model now?

"I think the results speak for themselves," Swallow said.

Early in his tenure, with Carthage's then-$30 million endowment invested in a mix of stock and bond mutual funds, Abt and then-board chair Ed Smeds did some research on the investment plan.

At the time, Abt said alternative investments were the rage but were "not a good investment for Carthage College."

They latched on to the index fund strategy.

"We felt if we would go with index funds, we'd lower our expenses and perform as well as the bigger institutions," he said.

The bet paid off.

Abt is ready to retire. And he has left Carthage in good hands, pursuing returns with patience and persistence.

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