Denison University is a small liberal arts college located “west of the Allegheny and north of the Ohio rivers” in Granville, Ohio, 30 minutes outside of Columbus. Chief Investment Officer Adele Gorrilla has been managing what is now the university’s $815 million endowment since she became its first CIO in 2008. The New Orleans native previously held positions at Goldman Sachs and the University of Minnesota Foundation, where she served as director of investments for five years. Her undergraduate degree is in economics from the Wharton School of the University of Pennsylvania. In 2014, she was named “Top Small Endowment Investor of the Year” by Institutional Investor.
Ms. Gorrilla was recently named on Trusted Insight’s ranked list of The Top 30 University Endowment Investors In Hedge Funds. She graciously spoke with Trusted Insight on September 23. The following interview has been edited and condensed.
Trusted Insight: How much of the endowment is invested in hedge funds?
Adele Gorilla: 40%, or approximately $326 million.
TI: Wow, that’s really high.
AG: It is, but Denison’s investment committee started down this path of investing in hedge funds in 1988. At its peak, this allocation exceeded today’s level; hedge fund investments accounted for 50% of the endowment.
TI: With such a high percentage of your endowment committed to hedge funds, does your investment committee get nervous about risk and liquidity?
AG: Absolutely, but we have a very savvy investment committee. The committee is comfortable with hedge funds’ middle range of illiquidity. You can watch managers reposition a portfolio and decide if the skill of the manager is protecting your investment over time, and if it’s not, move out. Of course, that’s easier said than done, but Denison’s hedge fund portfolio's Sharpe ratio is quite respectable.
TI: How many hedge funds are you invested in?
AG: 15 funds.
TI: I was recently at a conference at which the speaker said that only 5% of the US’s roughly 11,000 hedge funds are really good. Would you agree?
AG: Let’s just say you don’t have to weed through 11,000 funds to come to that conclusion.
TI: What is one of the most important ways your hedge fund investments impact your portfolio?
AG: In up markets, we don’t capture the full equity market returns, but we get protection in the down market; that’s the value. We have quantified this protection in several time periods and market conditions.
TI: What do you look for in a hedge fund manager?
AG: We have several longstanding relationships in our portfolio, but we are always looking for new partners. Given the amount of effort that went into building the portfolio, it’s a high bar for entry. Any new manager has to display ability to improve the program. They must have an edge in their process or network; they have to show that they can do well in varying environments.
TI: You have a five-person team and you mentioned that you’re all generalists. Do you usually reach a consensus before making a private equity investment or choosing a manager?
AG: We all challenge each other. Even if we believe in the idea. We play the devil’s advocate. What happens if... our thesis breaks, the regulatory environment changes, etc. It’s a group effort.
TI: Are you concerned about talk of closing the loophole affecting hedge funds’ carried interest tax?
AG: Yes. We’ve already seen a number of hedge funds say they’re closing their doors, turning into family offices. I don’t want to see the regulatory environment pushing away talented managers.
TI: What impact do endowment returns have on the University?
AG: Our endowment fuels 30% of Denison’s operating budget because the size of the endowment is large relative to the size of the school.
TI: What gives you a sense of pride when you think about what you’ve accomplished here?
AG: I’m quite happy with what has transpired at Denison. We changed the governance structure so that we manage the endowment internally. The team has full discretion over assets, which is the best way to take advantage of opportunities as they arise. The investment committee has been tremendously supportive in formulating a strategy, determining asset allocation and changing the portfolio lineup.
TI: What is the next best performing asset class after hedge funds?
AG: Private equity is the next best performing asset class. We calculate IRR [internal rate of return] and multiples on our hedge funds as well as our private equity. It makes for interesting discussion.
TI: What differentiates Denison from other universities?
AG: We have a beautiful campus. It’s exceptionally well resourced and we focus on a small number of individuals. It’s unique in the way we get to devote resources to our students. With under 2,200 students, we have a 10-to-1 faculty ratio.
TI: What is Denison's investment philosophy?
AG: Make the highest risk adjusted return possible to benefit the university.
To learn more about the top endowment investors in hedge funds, check out Trusted Insight's list of Top 30 University Endowment Investors in Hedge Funds.