How Bill Abt helped Kenosha's Carthage College beat Harvard and others (in investing)

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.

Roots in the brewing industry helped Abt succeed at Carthage

But he comes at this with a great deal of experience.

Abt was in the beer business for 25 years, getting his start in the distribution department in Milwaukee with the Joseph Schlitz Brewing Co. He stayed with the firm after it was purchased by Stroh Brewery Company and hopscotched to different facilities around the country.

After Stroh was taken over and broken up, Abt was looking around for work and figured he would take another beer job. But it turned out another former beer exec had other ideas.

Bob Dittus made the transition from beer to academia and was Carthage's long-time chief financial officer. When Dittus was about to retire, he convinced Abt to take a look at the job. Abt liked what he saw and signed on with Carthage in 2000.

In June 2015, Abt retired as Carthage's senior vice president for administration and business.

But he agreed to continue as the college's chief investment officer, working out of his home in Charlotte, N.C. He'll retire from that post next month.

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.

Carthage endowment asset allocation

43% Total Stock Market Index

5% Mid Cap Index

5% Small Cap Index

8% International Value Fund

8% International Growth Fund

3% Emerging Markets Stock Index

13% Developed Markets Index

5% REIT Index

5% Intermediate Term Investment Grade Fund

5% Total Bond Market Index