Investing for the Future of Tufts
Craig W. Smith brings plenty of financial acumen to bear as the leader of the Tufts Investment Office, which manages the university’s $2 billion endowment. When he talks about his role as Tufts’ chief investment officer, however, he notes that it is not just about “beating the market” but advancing Tufts’ mission and securing a solid future for generations of students, educators, and scholars yet to come.
Smith is happy to share the “what” and “how” of managing Tufts’ endowment (that's his voice in the video above, about Tufts’ endowment), but it’s the underlying “why” that he finds most rewarding. Investing offers a “wonderful combination of challenge and excitement,” he says, “but at the end of the day, it needs to mean more than just the numbers. I want the results to have impact and support social good.”
Smith, who joined Tufts in 2018 as an investment director, is only the second chief investment officer in the university’s history, officially succeeding the late Sally Dungan, a trailblazer in the field, in April. In the year ahead, he’s eager to talk with students, faculty, and staff across Tufts and launch a new Investment Office website this fall.
Smith shared some of his thoughts in a recent conversation with Tufts Now.
Tufts Now: What’s the most important thing the Tufts community should know about your office and Tufts’ investment management?
Craig Smith: I’d like all of us at Tufts to have a deeper understanding of the importance of the endowment. The endowment supports a tremendous number of activities across the university. Without these resources, financial aid would be lower, many current academic and research programs couldn’t exist or grow, and many future programs would not be possible. Everything we do in the Investment Office is designed to create financial support for Tufts now and in the future.
In a nutshell, what roles do the Investment Office and the Board of Trustees play in managing Tufts’ investments?
The trustees set policy and objectives, defining how we can invest, and they determine the university payout, which is the amount of the endowment that will be paid out in any given year to provide resources for immediate needs while also planning for the future. The Investment Office, in close coordination with the trustees’ investment committee, then executes in terms of which investments and external investment partners are best positioned to pursue that strategic direction for Tufts’ endowment.
How do you measure success, for the portfolio and for yourself and your team?
The portfolio must achieve three equally important objectives. First, maintain sufficient liquidity—investments we can sell quickly—to meet the university payout and manage the portfolio day-to-day. Second, achieve an appropriate risk profile that reflects the university’s total financial situation. Third, achieve a long-term return that equally supports every generation at Tufts in perpetuity. In addition, we assess our results against market performance in the asset classes in which we invest and against other university endowment returns.
Our team also has several strategic goals for the office itself. We want to partner more closely with others across the university and support long-term strategic planning. We want to communicate better with faculty, students, and staff, and deepen our relationships with all constituents. We also want to raise the office’s capabilities and profile to ensure ongoing investment success. We have an incredible base from which to build and in the next 10 years, we aim to raise our visibility in financial markets, so we ensure that Tufts can work with the best investment professionals in the world.
What's the biggest challenge in managing Tufts’ investments?
The thing that makes investing so interesting is also the biggest challenge: It’s a dynamic world and becoming more so every day. Everything matters—geopolitics, national politics, monetary policy, demographics, new technologies and industries, changes in consumer behavior. How do you plan for an investment portfolio to perform exceedingly well for the next 25 years, and longer, when it’s hard to know what the world will look like in five years? That’s the challenge we wrestle with every day.
How do you prepare for the unexpected, be it a pandemic or a war?
Since Tufts’ endowment portfolio is intended to last forever, it’s less a question of whether something will happen and more a question of when it’s going to happen. We can’t predict that, so the starting point is to say bad scenarios will occur, so let’s try to understand what the impact and implications on the portfolio are going to be in those situations and make sure we have a plan to work through that. That’s not to say we won’t be temporarily hurt when markets fall, but we’ll have a path through these times to come out the other side. This is why diversification is so critical. You want to diversify across every dimension you can: asset classes and investment approaches, geography, sectors, external partners.
What would most surprise our readers about managing Tufts’ investment portfolio?
A tremendous amount of time, effort, and debate goes into every investment decision. It often takes six months or significantly longer from the inception of an idea to actual investment. And sometimes we do all that work and ultimately decide not to make an investment. When new analysts join our office, they’re frequently surprised by this level of depth in our decision-making.
In February, Tufts announced several investment policies approved by the Board of Trustees to address climate change. How are we doing?
The trustees approved recommendations from the Responsible Investment Advisory Group (RIAG) that focused on advancing sustainability and addressing the urgent crisis of climate change. The most important aspect of these policies, from my perspective, is the university’s commitment to invest millions of dollars to address and mitigate climate change. Fossil-fuel production won’t be shut down until there is sufficient capacity on other fronts.
Changing the trajectory of climate change requires tremendous investment to expand clean energy generation and improve energy efficiency across all economic sectors. In this last year, Tufts has committed $10 million to a private equity fund investing in the expansion of U.S. solar energy facilities and $8 million to a climate change fund investing in technology and solutions—electric vehicle infrastructure, for example—to help achieve net zero carbon targets. We’re continuing this work and are currently assessing an investment in the expansion of wind-power generation facilities in Europe.
The RIAG recommendations also affirmed restriction of direct investment in 120 coal and tar sands reserve companies, which were viewed as the energy sources contributing the most to the release of greenhouse gases and climate change. Tufts has no direct investments in those companies and we will not make any. We’ve communicated our expectations on this issue to all the managers of the funds in which we invest. By and large, our investment partners share our concern about climate change and have made changes to how they operate and invest in recent years. That said, this will be an ongoing effort, and I expect we’ll see even more progress as we move forward.
With input from community members, we’re developing a reporting dashboard that we will incorporate into our new website. This dashboard was another important part of the RIAG’s recommendations to enhance transparency about the university’s progress toward our commitments announced earlier this year.
You probably get asked for investment advice all the time. What do you tell people?
Managing an endowment is very different from personal investing, but people frequently ask me, is X a good investment? I always ask them, for what purpose? Starting with your goal is paramount. If you’re going to need the money in the next two years, that’s a very different proposition than saving for retirement in 30 years—or investing an endowment portfolio that is intended to last forever.