Foundation and Endowment Investing E-Book

Lawrence E. Kochard

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Finance Editions
• Sprache: Englisch

Seitenzahl: 559

Veröffentlichungsjahr: 2010

Beschreibung

In Foundation and Endowment Investing, authors Lawrence Kochard and Cathleen Rittereiser offer you a detailed look at this fascinating world and the strategies used to achieve success within it. Filled with in-depth insights and expert advice, this reliable resource profiles twelve of the most accomplished Chief Investment Officers within today's foundation and endowment community--chronicling their experiences, investment philosophies, and the challenges they face--and shares important lessons that can be used as you go about your own investment endeavors.

Leseprobe

Table of Contents

Title Page

Copyright Page

Dedication

Preface

Acknowledgments

About the Authors

PART ONE - Foundations and Endowments Rise as Powerful Institutional Investors

CHAPTER 1 - The Evolution of Foundation and Endowment Investment Management

ORIGINS OF ENDOWMENT MANAGEMENT

CATALYSTS OF CHANGE

TRANSFORMATION

THE RISE OF THE CHIEF INVESTMENT OFFICER

LEARNING FROM HISTORY

CHAPTER 2 - Foundation and Endowment Investing 101

FIDUCIARY PRINCIPLES

MISSION STATEMENT

INVESTMENT POLICY

ASSET ALLOCATION

INVESTMENT POLICY IMPLEMENTATION

BENCHMARKING AND PERFORMANCE EVALUATION

GOVERNANCE

SUMMARY

CHAPTER 3 - The Investment Landscape

HOW DID WE GET HERE?

INVESTING BASICS

MARKET FOCUS ON ALTERNATIVE ASSETS

WHERE ARE WE GOING?

PART TWO - Profiles in Capital

CHAPTER 4 - Another Sage of Omaha

BACKGROUND

BEING CHIEF INVESTMENT OFFICER

LESSONS, OBSERVATIONS, AND ADVICE

MIDWESTERN VALUES AND WISDOM

CHAPTER 5 - Doctor, Lawyer, Investment Chief

BACKGROUND

BEING CHIEF INVESTMENT OFFICER

LESSONS, OBSERVATIONS, AND ADVICE

REAL REWARDS

CHAPTER 6 - Leading the Evolution

BACKGROUND

BEING CHIEF INVESTMENT OFFICER

LESSONS, OBSERVATIONS, AND ADVICE

THE TRUE REWARDS

CHAPTER 7 - Partner, Patriot, and Performer

BACKGROUND

BEING CHIEF INVESTMENT OFFICER

LESSONS, OBSERVATIONS, AND ADVICE

COMMITMENT AND PURPOSE

CHAPTER 8 - Built an Endowment through Common Sense

BACKGROUND

BEING CHIEF INVESTMENT OFFICER

LESSONS, OBSERVATIONS, AND ADVICE

COMMON-SENSE REWARDS

CHAPTER 9 - Investment Artist with Her Own Perspective

BACKGROUND

BEING CHIEF INVESTMENT OFFICER

LESSONS, OBSERVATIONS, AND ADVICE

COMPLETING THE PORTRAIT

CHAPTER 10 - Master of All Trades

BACKGROUND

BEING CHIEF INVESTMENT OFFICER

LESSONS, OBSERVATIONS, AND ADVICE

THE BOTTOM LINE

CHAPTER 11 - Agile Investment Engineer

BACKGROUND

AN AGILE CIO

REAL REWARDS

CHAPTER 12 - Driven by Intellectual Curiosity

BACKGROUND

BEING CHIEF INVESTMENT OFFICER

LESSONS, OBSERVATIONS, AND ADVICE

INQUISITIVE, INNOVATIVE, INTELLIGENT

CHAPTER 13 - The CIO as CEO

BACKGROUND

BEING CHIEF INVESTMENT OFFICER

LESSONS, OBSERVATIONS, AND ADVICE

RETURN ON LEADERSHIP

CHAPTER 14 - Navigating New Investment Waters

BACKGROUND

BEING CHIEF INVESTMENT OFFICER

LESSONS, OBSERVATIONS, AND ADVICE

DISCOVERING NEW INVESTMENT WORLDS

CHAPTER 15 - Invest without Emotion, Act with Conviction

BACKGROUND

BEING CHIEF INVESTMENT OFFICER

LOOKING BACK AND AHEAD

GETTING THE CALL

PART Three - Summary and Analysis

CHAPTER 16 - Lessons for Investors

INVESTMENT PHILOSOPHY

GOVERNANCE

INVESTMENT THEMES

FUTURE CHALLENGES

CHAPTER 17 - The Business of Foundation and Endowment Investment Management

COMPARISON

COMPETITION

COMPENSATION

MANAGEMENT MODELS

THE BOTTOM LINE

CHAPTER 18 - Real Rewards

FINAL THOUGHT

Notes

Index

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Copyright Ⓒ 2008 by Lawrence E. Kochard, PhD, CFA, and Cathleen M. Rittereiser. All rights reserved.

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Library of Congress Cataloging-in-Publication Data:

Kochard, Lawrence E., 1956-

Foundation and endowment investing : philosophies and strategies of top investors and institutions / Lawrence E. Kochard, Cathleen M. Rittereiser.

p. cm.—(Wiley finance series)

Includes index.

ISBN 978-0-470-12233-4 (cloth)

1. Institutional investments. 2. Endowments—Finance. I. Rittereiser, Cathleen M., 1960- II. Title.

HG4521.K5763 2008

332. 67’253—dc22

2007025168

For

Firewalkers everywhere and the prudent menstanding by watching and laughing at them

Our families and friends

Tug McGraw because “You Gotta Believe!”

Preface

It has been nearly three years since I had the privilege of joining Georgetown University to help create an investment office at the country’s oldest Catholic and Jesuit university. After joining Georgetown, I realized that our success would be helped by learning from the best practices of well-established investment offices at other institutions. We made an effort to reach out to colleagues in the endowment and foundation investment community to learn about the governance and investment processes that contributed to the success of their investment programs.

Additionally, for the last several years I have been lucky enough to teach undergraduate and graduate investment courses at the University of Virginia and Georgetown University. I currently teach a graduate course, Investment Management for Endowments and Pensions, at Georgetown University, which exposes students to the investment approach of large institutional investors. Topics covered include the purpose of the endowment and pension, portfolio choice, manager selection, asset allocation, risk management, and alternative asset class investing.

The text for the course has been Pioneering Portfolio Management by David Swensen, the chief investment officer of the Yale University endowment. David Swensen is the best-known and one of the most successful endowment CIOs, having achieved 16.3 percent per annum returns since he started at Yale, 21 years ago. Swensen’s books (he wrote a second book aimed more to individual investors), a Harvard Business School case about the Yale investment office, and increasing attention by the business media (e.g., a February 18, 2007, New York Times article, “For Yale’s Money Man, a Higher Calling”) have exposed other investors to his approach to investing Yale’s endowment.

Swensen’s success over many market cycles clearly warrants the amount of attention he has garnered over the past few years. Other investors have become interested in learning about his “secret sauce.” I have received suggestions from many Georgetown alumni that we should be “just like Yale.” My response has always been that we should strive to achieve the process, philosophy, and discipline that contributed to Swensen’s success, but shouldn’t imitate the investments of Yale’s that worked in the past. This “rearview mirror” approach to investing inevitably leads to disappointing results.

Reaching out to peers in the endowment and foundation community made me realize that other CIOs have had investment success similar to Swensen’s. Having enjoyed reading books like Market Wizards, written by Jack Schwager, and Investment Gurus, by Peter Tanous, in which the authors interview portfolio managers to learn from their experiences, I tried to find a similar book about foundation and endowment CIOs. None existed. The world was familiar with David Swensen and, to a lesser extent, Harvard University’s Jack Meyer, but it ended there.

I wanted my students and other investors to learn about the experiences of these other accomplished endowment and foundation CIOs. They have influenced me as much as Swensen, and I felt strongly that other investors, both institutional and individual, could benefit from hearing about the approaches and philosophies of endowment and foundation investors who deserve similar credit for the investment programs and offices they helped build.

I first met Cathleen Rittereiser from Alternative Asset Managers, LP, at a hedge fund conference in July 2002, and we became friends when I joined Georgetown in 2004, communicating primarily by e-mail. We attended the same conferences and shared similar opinions about the growing power and unsung talents of foundation and endowment CIOs. In 2005, we recognized that the combination of my vision for the book and endowment investing experience, Cathleen’s writing skills and investment marketing experience, our network of industry contacts, and a great working relationship made us the right team to bring these investors together and write this book.

Having now interviewed these accomplished investors, I know readers will learn from their experiences, philosophies, and strategies and will be well positioned to make more informed and thoughtful investment decisions. It will give greater insight into how to approach asset allocation and investing for the long term, and a greater understanding of the mind-set and knowledge required to succeed in the current challenging investment environment.

We hope that their experiences and approaches will help guide other investors, including smaller institutions, family offices, and individual investors, just as my informal survey of other CIOs helped me establish “best practices” at Georgetown from an investment policy or “road-map” standpoint.

Taking a step back, we provide background on the foundation and investment community and will describe how and why this group has become a bigger and more influential investment force.

Successful people in any field don’t stick their heads in the sand—they are always hoping to learn new ideas from other innovators and leaders in any field. As investors, we all want to do a better job establishing a disciplined and successful investment process and generate better returns on our portfolio whether it benefits an institution or our families.

Cathleen Rittereiser and I feel privileged to learn from these leading endowment and foundation investors and want to express our gratitude for their participation in the book. Our goal was to capture their thought processes, so that we and our readers would understand their philosophies and gain investment insight. We believe we have achieved our goal.

LAWRENCE E. KOCHARD Georgetown University June 2, 2007

Acknowledgments

When Larry Kochard first told me about his idea for this book and suggested we work together to write it, it seemed like a great idea, but ... how would we do it? When could we do it? It seemed impossible. Yet just over two years later, we have written a book investors should find interesting and valuable, and we take great pride in having written it.

We could not have done it without each other and we could not have done it without the people we thank here.

Starting off, we must thank our employers and colleagues.

Randy Yanker and Rodney Yanker, the founders of Alternative Asset Managers, LP, and my other colleagues in the firm provided resources, support, lunch, and proofreading. I really appreciate their help. Also, we thank Ken Grant, who tested the concept with editors and helped us contact publishers.

From the Georgetown University investment office, we want to thank Justin Toumey for research assistance, analysis, and support; Meghan Woodhouse for coordination and logistics; and Christine Kelleher for editorial feedback and advice. Larry appreciates the support of his entire staff at the investment office and the members of the Georgetown investment committee. Because his students, past and present, inspired him to write this book, he thanks them as well.

Sandra Urie and Celia Dallas of Cambridge Associates spoke to us on background and graciously allowed us to use their original research in the text; Both Tim Barron from Rogers Casey and Dennis Hammond from Hammond Associates had helpful insights as well.

Andrea Szigethy of Morgan Creek Capital Management approached certain investors to ask for their participation and read early chapters, giving us valuable feedback.

Jason DeSena Trennert, managing partner and chief investment strategist, Strategas Research Partners, introduced us to Vinny Catalano, CFA president and global investment strategist with Blue Marble Research and author of Sectors and Styles: A New Approach to Outperforming the Market. Vinny introduced us to Wiley.

We especially want to thank Kevin Commins, the acquisitions editor at Wiley. He decided to publish the book, has supported our ideas, and has worked with us to make it happen.

Elden Mayer and Sam Kirschner gave me a copy of their book, The Investor’s Guide to Hedge Funds, and Sam advised us on how to put together a book like this. Next time, I will do it his way.

My dear friends and fellow authors, Dave Singleton and Johanna Skilling, gave me advice and assistance preparing the proposal, interviewing, writing tips, and managing workflow. Dave also helped introduce the proposal to agents. I paid him back by being “The Spoiler.”

Stephen R. Quazzo of Transwestern Investment Company, LLC, an old friend from Merrill Lynch, had several good ideas and contacts and made an important introduction for us.

Jeff Skelton and Michael Henman at Symphony Asset Management put the wheels in motion. Thanks.

Emilie Herman has been patient, helpful, and supportive and deserves a prize for working with first-time authors with full-time jobs.

Finally, we thank family, friends, and anyone we forgot.

On behalf of Larry Kochard and myself, with great appreciation,

CATHLEEN M. RITTEREISER June 8, 2007

About the Authors

Lawrence E. Kochard was appointed chief investment officer at Georgetown University in June 2004. In addition to serving as CIO, he teaches investment courses for the McDonough School of Business at Georgetown. Previously, Larry was managing director of equity and hedge fund investments for the Virginia Retirement System (VRS) and adjunct professor of finance for the McIntire School of Commerce at the University of Virginia. Prior to joining VRS, he was a full-time faculty member at UVA. Before his return to academia, Larry accumulated over 10 years of experience in corporate finance and capital markets. He currently serves on the investment committee of St. Louis University and chairs the investment committee of the College of William & Mary.

Larry holds a BA in economics from the College of William & Mary, an MBA in finance and accounting from the University of Rochester, an MA and PhD in economics from the University of Virginia, and is a CFA charter holder. He is married and has four children.

Cathleen M. Rittereiser is an alternative investment sales and marketing executive focused on the institutional investor market, particularly foundations and endowments. Cathleen has held sales, marketing, and client relationship management positions at leading asset management firms, investment banks, and research firms. Her experience includes serving as Vice President, Marketing for Alternative Asset Managers, LP (AAM) an independent investment boutique specializing in emerging hedge fund managers. Before joining AAM, she handled business development for Symphony Asset Management, a Nuveen Investments company, and began her career at Merrill Lynch.

An accomplished public speaker, Cathleen has participated in investment industry conference panels on topics ranging from securities valuation to the impact of technology and has extensive knowledge of digital media, social networking and Web 2.0 technology. Cathleen leads 100 Mets Fans in Hedge Funds, an organization she co-founded with Larry Kochard, and writes and performs comedy material. Cathleen received an AB from Franklin and Marshall College and an MBA from New York University’s Stern School of Business. She lives in New York City and at www.cathleenrittereiser.com.

PART ONE

Foundations and Endowments Rise as Powerful Institutional Investors

CHAPTER 1

The Evolution of Foundation and Endowment Investment Management

From Poorhouses to Powerhouses

Foundations and endowments have become investment powerhouses, managed by sophisticated investors using advanced investment techniques. Despite a smaller asset base than pension funds, they have become increasingly influential institutional investors because their long-term perspective gives them the latitude to take more investment risks and the impetus to adopt new asset classes and strategies long before other investors. While the number of foundations and endowments is not necessarily growing, the numbers that have chosen to dedicate professionals to their investments has grown. There are more organizations with in-house investment staffs or new chief investment officers (CIOs) than ever.

It could have turned out differently. Until 1969 most endowment funds had conservative portfolios, which underperformed other investors. If McGeorge Bundy at the Ford Foundation had not intervened, foundations and endowments might have become investment poorhouses today.

This chapter chronicles the evolution of foundation and endowment investment management from the first gifts to Harvard to the important changes set in motion by McGeorge Bundy and the Ford Foundation, the global economic and market conditions driving investment performance, and the rise to prominence of foundation and endowment CIOs.

It will give an overview of how these institutions became so powerful and a rationale for profiling the talented CIOs who got them there.

ORIGINS OF ENDOWMENT MANAGEMENT

Endowments can be traced back to the fifteenth century, when donors in England made gifts to churches, schools, and universities to support them in perpetuity. Usually, these gifts carried the restriction that the principal (the donated amount) needed to be preserved, although the income from the endowment could be spent. Donors frequently restrict the use of an endowment for a specific purpose, such as professorships or scholarships. Endowments are intended to be a permanent source of income for institutions that traditionally did not have income.1

The core pool of assets managed by either foundations or educational institutions is known as its endowment, although in the investing community, endowment has become shorthand for describing the investments of educational institutions. Throughout the text, endowment will generally be used to describe the assets of educational institutions or a specific institution. In this chapter and occasionally throughout the book, the word will refer to the assets of nonprofit organizations in general.