The Challenge

A $20 million university endowment in Indiana asked us to consult on their foundation’s investment portfolio. Prior to working with us, the foundation’s board of directors had delegated investment management to an insourced Chief Investment Officer as the sole portfolio manager.

The portfolio’s performance roughly tracked its specific blended benchmark. Despite hugging the index, the foundation was not able to meet its annual target distribution requirement of five percent without regularly invading portfolio principal. The board of directors were also puzzled when the sophisticated investment strategies championed by their Chief Investor Officer were not able to deliver on their projected performance.

In an effort to ensure that the foundation was doing its best to support the mission of the university, the board of directors set out to obtain an independent analysis.

The Approach

It was important to analyze the endowment’s existing portfolio prior to creating a solution. After reviewing endowment’s annual reports, our team provided a comprehensive analysis to explain to the board of directors:

• Why active management and alternative assets classes are rarely successful investments
• Why their foundation’s forays into these types of investments were no exception
• The high fees the foundation was paying for these sophisticated investment strategies
• The inappropriateness of their chosen poor-performing blended benchmark

Our approach helped identify what was holding back foundation’s portfolio – specifically expensive, but poor-performing investing strategies. The analysis allowed the foundation’s board of directors to see the impact of selecting inappropriate investment strategies and clearly outlined options for moving forward with a disciplined approach to investing.

The Results

This foundation portfolio was overly complex and held too many exotic and speculative investments — and made no consideration for fees paid or the likelihood of success with unconventional and costly investment strategies.

We developed and implemented a low-cost, globally diversified investment portfolio that helped minimize fees, giving the foundation a greater chance of reaching its goals. The solution included updating their endowment portfolio’s benchmark – removing the consideration of performance of risky debt investments. This gave the board of directors a better understanding of how their portfolio is performing.

The Define team meets with the foundation board of directors on a regular basis. We review a different central tenant of investing strategy at each meeting. This ongoing communication helps the board asses the viability of the endowment portfolio and its potential contribution to the university.