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Endowment Management

Endowment management includes topics such as an organization’s investment policies, asset allocation, manager selection, spending policy, and costs related to investing. (Click on the links below to open PDF files in a new browser window.)


Survival of the Fittest: South Africa Lessons on Investing
There are more than a few parallels between what speakers had to say at a pension officers' conference in Cape Town and what wide-eyed tourists espied on the game reserve: there is safety in numbers, overconfidence is to be overcome, expect the unexpected, sloth is a virtue, risk is in the eyes of the beholder.

Thinking About Risk
Many investors have been so conditioned to examine carefully the risks inherent in each investment that they make — to make sure that their downside is tolerable — that they ignore entirely or give short shrift to the important question of whether their upside is adequate.

"Alternative" Investment: Balancing Risks and Rewards
The principles that underlie most successful attempts to diversify institutional funds beyond domestic stocks and bonds are in fact the same principles that animate successful investment programs that are confined to these two traditional asset classes.


One nice thing to be said about both the M² and Sharpe methods is that they are robust enough to accommodate multiple definitions of risk. For example, many investment professionals whose early training instilled a near-religious belief that "risk" means total variance now freely confess that downside variance better describes what their clients seek to avoid.

Message in a Bottle
The lamentable fact is that computer-based approaches to asset allocation do not eliminate the need for fiduciaries (or their advisers) to make subjective judgments about the future returns, volatilities, and correlations of the asset classes and subclasses being considered for purchase. Indeed, they actually amplify this need and they put fiduciaries in the untenable position of attempting to forecast the inherently unforecastable.

Policy Portfolio Redux and Exhibits
A fictional investment committee debates long-term asset allocation as well as why relatively small money management shops have an edge investing in marketable stocks on a truly global basis and why the “sweet spot” for endowment management is smaller (in dollar terms) than many investment committees surmise.

Provocative Panel on Private Investing
Three broad categories are covered: (1) the Internet's impact on corporate strategy and tactics, (2) the Internet's impact on institutional investment strategy and tactics, and (3) the Internet's impact on public policy formulation and implementation.

The Six Percent Solution
The absence of unarguably correct methods for allocating assets notwithstanding, there are unarguably incorrect methods for doing so — methods that, like modern notions of parenting (or schooling), tend to exalt pseudo-scientific precepts over common sense.

CoF 4/29/2002 – 6% Real or Bust?
There’s no such thing as an “ideal” asset mix or policy portfolio, even for endowed charities with identical spending rules. Why? Because the true test of the appropriateness of a given mix for a given endowment is whether it will produce the maximum return for whatever level of risk the endowment’s trustees are willing to bear.

NACUBO 1/17/2002 – 6% Real or Bust?
There’s no such thing as an “ideal” asset mix or policy portfolio, even for endowed charities with identical spending rules. Why? Because the true test of the appropriateness of a given mix for a given endowment is whether it will produce the maximum return for whatever level of risk the endowment’s trustees are willing to bear.

2 Percent Dilemma
How can trustees of endowed charities deploy their assets in a manner that will give them a “fighting chance” of maintaining purchasing power while consuming 6% of endowment assets per annum?

Tending Toward TIPS
While the TIPS market is older and more predictable than some of the Internet-related ventures that have induced certain institutions to allocate vastly more money to venture capital than to TIPS in recent years, TIPS are undeniably a relatively immature "asset class." This is offputting to some fiduciaries, especially those who believe that intuition should play no role whatsoever in policy formulation.

What If...
By devising creative answers to familiar questions – or by asking questions that others lack the creativity or courage to pose – investors can gain a material edge over the competition.

Why Not 100 Percent Stocks
An address presented by TIFF president David Salem at a symposium on endowment and foundation investing. It takes the form of a conversation between two people who have different views on the wisdom of investing 100% of an institution's assets in common stocks.

Behavioral Finance
Mark Twain was right: there's as much human nature in any of us as there is in all of us, and hence the only safe premise on which our investment behavior can be based is the assumption that our intuitions are likely to mislead us from time to time. From this, an important corollary follows: to prevent us from acting on wrong intuitions, we need frameworks - literally checklists or worksheets - that compel us to consider factors that, acting on intuition alone, we are likely to miss. Admittedly, some especially gifted investors can do well without such devices, but the rest of us cannot.

Dear Diary - Part I: Timeless Truths About Investing
Keeping a diary of timeless truths about investing has helped at least one fiduciary avoid certain mistakes that investors tend to make on a recurring basis.

Dear Diary - Part II
Boiled to their essence, all prescriptions for investment success have just two active ingredients: “think long term” and “control your emotions.” Some investors can gain and hold an edge by ignoring the first principle – but only if they are uncommonly good at abiding by the second.

Dear Diary - Part III
Continues TIFF’s efforts to record permanently facts and opinions that "illumine aspects of investing with respect to which human beings … tend to make recurring mistakes."

Fund of Funds: Cure or Disease?
In the unbiased opinion of the people who run them, funds-of-funds play a vital disciplinary role in the private equity marketplace. They purportedly do this by forcing general partners of the underlying funds in which they invest to do three crucially important things: one, adopt fee structures that make the GPs' interests as congruent as possible with the interests of their limited partners; two, eat their own cooking, so to speak, by investing a substantial portion of their own net worth in their own funds; and three, limit growth in assets under management as well as the number of deals done to levels consistent with their firms' staffing levels and deal flow.

A Look Ahead Parts I and II
America's elementary and secondary schools (private as well as public) are manifestly failing to prepare students to compete effectively in a truly globalized economy.

Bibliography for K-12 Education in America
America’s elementary and secondary schools (private as well as public) are manifestly failing to prepare students to compete effectively in a truly globalized economy.

Reflections on Investing
For perpetual life institutions, equities broadly defined are the least risky asset, because they are the most reliable way of maintaining endowment purchasing power. For investors with short time horizons, assets whose prices fluctuate (including equities) can be very risky, because such investors may need (or elect) to sell them at temporarily depressed prices.

Reflections on US Real Estate
The real estate market can reasonably be divided into two segments: the first includes those areas that cater to the technology industry (San Francisco area, Boston, New York City, west Los Angeles), and the second segment is everything else. In the technology-driven areas, the leasing market is incredibly hot and price insensitive.

Strange But True
The S&P 500 comprises not the 500 largest US stocks but rather 500 issues that a committee of Standard & Poors employees deems representative of the broad US economy. Due primarily to heavy M&A activity, but also to S&P's determination to keep its vaunted 500 Index "current" by replacing fading Industrial Age stocks with sexier Information Age stocks (e.g., America Online replaced the old Woolworth in 1998), there have been more than 260 changes in the Index over the last decade.

Taking the Long View
A fictional investment committee debates a host of scintillating investment policy issues, including sensible policy changes, adding private investments into a policy, and foreign stocks.

Terms of Endearment
Because so many forms of investing have failed of late, the demand for certain types of managers is shrinking relative to available supply, making it easier on the margin for attentive investors to negotiate more client-friendly fees and terms.



Commentaries

 

Summaries of interviews, including Ken Hersh (NGP Energy Capital Management), David Dominik (Golden Gate Capital), Runa Alam (Development Partners International), Steve Mandel (Lone Pine Capital), Lee Ainslie (Maverick Capital Management).

Interviews with Michael Eisenson (Charlesbank Capital Partners) and Josh Kopelman (First Round Capital) from the 2009 Endowment Management Seminar.

A great financial journalist of the 20th century gets remembered and honored by a new voice of the 21st.

Interview with Stu Porter (Denham Capital Management) from the 2008 Endowment Management Seminar.

Interviews with Arshad Zakaria (New Vernon Capital) and Jon Moulton (Alchemy Partners) from the 2008 Endowment Management Seminar.

Interviews with Ian Wace (Marshall Wace Asset Management), Jeremy Hosking (Marathon Asset Management), and Antoine van Agtmael (Emerging Markets Management) from the 2009 Endowment Management Seminar.

Interviews with Hilda Ochoa-Brillembourg (Strategic Investment Group) and Tom Steyer (Farallon Capital Management) from the 2007 Endowment Management Seminar.

An address entitled Endowment Management Circa 2007: Art, Science or Craft? by TIFF’s founding president David Salem at a gathering assembled by the National Association of College and University Business Officers (NACUBO).

Interviews with Bevis Longstreth (Former SEC Commissioner), Joanne Hill (Goldman Sachs), and Marty Leibowitz (Morgan Stanley) from the 2007 Endowment Management Seminar.

Interviews with Jim Garland (The Jeffrey Company), Charlie Ellis (Yale University’s investment committee), and Mark Kritzman (Windham Capital Management) from the 2005 Endowment Management Seminar.

A fictional investment committee deliberates the pros and cons of a novel approach to policy portfolio construction entailing a highly unconventional approach to risk budgeting.

Interviews with Harvey Dale (NYU School of Law), Mohamed El-Erian (Harvard Management Company), and Bill McCalpin (Rockefeller Brothers Fund) from the 2006 Endowment Management Seminar.

Interviews with Bill Helman (Greylock Partners) and Jeremy Grantham (GMO) from the 2006 Endowment Management Seminar.

Thoughts on ways in which persons charged with stewarding endowment capital can do a more effective job discharging this solemn duty.

Discusses how most investment failures tend to be rooted in overly aggressive play.

Presentations by Jack Meyer (Harvard Management Company) and Steve Galbraith (Maverick Capital) from the 2005 Endowment Management Seminar.

Discusses an ambitious initiative: to develop a truly integrated approach to investment policy formulation for endowed charities.

Focuses on a concise and internally consistent investment policy statement (IPS) for endowed charities.

Discusses the costs that endowed charities and other investors incur due to a misalignment of interests between owners or principals on the one hand and agents on the other.

Discusses – among other things – the fact that few investors can afford to "buy and hold" stocks on a truly permanent basis, perpetual life charities not excepted.

Discusses regulation, the money management industry, and hedge funds versus absolute-return-oriented investment partnerships.

A fictional investment committee debates long-term asset allocation and why relatively small money management shops have an edge investing in marketable stocks on a truly global basis.

By devising creative answers to familiar questions – or by asking questions that others lack the creativity or courage to pose – investors can gain a material edge over the competition.

The best means of preserving the non-profit sector’s vitally important independence is for those privileged to hold leadership positions within it to insist that the organizations they lead adhere to the highest possible standards of performance and fair dealing.

Because so many forms of investing have failed of late, the demand for certain types of managers is shrinking relative to available supply, making it easier on the margin for attentive investors to negotiate more client-friendly fees and terms.

A fictional investment committee debates a host of scintillating investment policy issues, including sensible policy changes, adding private investments into a policy, and foreign stocks.

Keeping a diary of timeless truths about investing has helped at least one fiduciary avoid certain mistakes that investors tend to make on a recurring basis.

Boiled to their essence, all prescriptions for investment success have just two active ingredients: "think long term" and "control your emotions."

Asset allocation, like parenting, is such a universal and important challenge that laypersons assume "experts" have reduced it to an exact science. In fact, it's nothing of the sort.

Financial markets were memorably unkind to most investors in 2000, and careful study of that year’s market action reveals several important lessons for investors.

 

   
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