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Trusted Insight Exclusive: 5 Endowment Investors On The Industry's Biggest Challenges

by trusted insight posted 6years ago 9854 views
Trusted Insight asked five directors and chief investment officers at university endowments one question: What the biggest investing challenge at university endowments, either specific to your endowment or endowment investing in general? 

Sally Staley, chief investment officer at Case Western Reserve’s $2 billion endowment, said:

Good governance is the necessary foundation for achieving desired investment outcome. Yet governance practices seem to evolve more slowly than markets and portfolio practices. Layered onto the “slow evolution” challenge is the seeming industry shortage of experienced, fund-level governance and oversight directors/trustees for globally diversified, multi-asset portfolios.

[Another challenge is that] the endowment industry is enduring a creeping mismatch of investment time horizon and risk time horizon that is leading to sub-optimal investment decisions. An endowment may be a perpetual pool of capital, but its investment time horizon should not be perpetuity if investment results are measured in three-year increments and/or its institution has one- or two-year cycles for budgets and other financial planning. Read the full interview here.

Julia Mord, director at Tulane University’s $1.22 billion endowment, said:

University endowments are faced with requirements to generate aggregate returns of at least their annual payout plus CPI (Consumer Price Index), which equates to approximately 7-8% annually. Given zero-interest rate policies across developed markets; rich valuations in U.S. equity markets; and slowing growth in China and its implication on global commodity-producing nations, endowments are faced with a growing challenge to meet those targets. 

Tulane’s returns have been top quartile on a 3-, 5- and 10-year basis, largely driven by a sizable allocation to global equities. We continue to believe the best return potential remains in equities and have relied on a unique portfolio of concentrated managers to drive returns. 

However, given the challenges described, we remain cautious on the macroeconomic environment and ensuing market volatility. To that end, we rely on other aspects of the portfolio, including our marketable alternatives sleeve, comprising a diversified pool of hedge fund managers and strategies to mitigate risk within the broader endowment portfolio. Read the full interview here.

McCall Cravens, then-managing director of investments at Southern Methodist University’s $1.5 billion endowment, said:

I think the biggest challenge to generating returns is the ability to take the appropriate timeframe on something. It’s nearly impossible to time the market just right. The hardest thing is having the patience to stick with your convictions based on a long-term point of view and execute on the strategy you have set forth regardless of short-term market noise. 

Also, asset allocation drives so much of return over the long-term, but it’s very difficult to be tactical on that front in a fully invested portfolio. Read the full interview here.

Deborah Kuenster, chief investment officer at Wellesley College’s $1.8 billion endowment, said:

I think a big challenge will be how will the world economy create a growing pot of wealth. Read the full interview here.

Kristi Craig, director at Georgetown University’s $1.5 billion endowment, said:

There’s a lot of capital out there. The best risk control is to buy well. And high private asset valuations are making that increasingly hard. Read the full interview here.