FEMM072709

Morgan Creek ExecDefends EndowmentsMike Hennessy, founding partnera t Morgan Creek CapitalManagement , has come out indefense of the endowment model,which has come under attack by themainstream press.

See Story, Page 2

At Press TimeEndowments Over Do Private Equity 2

SearchesArizona Foundation Scouts PE 3Iowa Ups Real Estate 3Alaska Sours On Illiquidity 3Nunavut Seeks Real Estate 4West Florida Ponders Portfolio 4

PeopleMan Institutional Chief Departs 5Morgan Stanley Cancels Exec Search 5

Marketing StrategiesFoundations Struggle In ’08 5Nonprofits Increase Fixed Income 7Ex-BlackStone Honcho Kicks Off Fund 9Liontrust Taps GAM Squad 9

DepartmentsFund Focus: Case Western

Reserve University 10Search Directory 13

AUGUST 2009VOL. XII, NO. 8

COMMONFUND READIES CASH MANAGEMENT PLATFORMCommonfund is planning to roll out a new cash management platform later this year toreplace its Short Term Fund, a university favorite that was forced to halt redemptions last fall.The Commonfund Cash Investment Platform will consist of multiple providers offering anarray of strategies from Treasury and agency securities to other options, said Jon Speare,managing director of treasury products. The halt of the Short Term Fund last fall left manyuniversities in the lurch because they were unable to tap their cash resources for privateequity capital calls and spending and had to resort to selling securities holdings.

(continued on page 15)

MOUNT SINAI SCOUTS ALTERNATIVES Mount Sinai Medical Center is looking at several alternative investments for its $1 billionendowment. On its radar are global macro hedge funds, natural resource investments andcredit plays that could include residential mortgage-backed securities, said CIO ScottPittman. The size of the moves would vary, but could each be 2-3% of the portfolio, henoted.

Mount Sinai currently does not have any dedicated global macro investments and onlyhas limited exposure through some multi-strategy hedge funds. It’s keen on the strategy


BAYLOR EYES HEDGE FUND,DISTRESSED OPPORTUNITIESBaylor University’s roughly $1 billion endowment is looking atinvestments in several areas, including hedge funds anddistressed securities. The Waco, Texas-based school isparticularly keen on hedge fund strategies that are liquid andtrade volatility, said CIO Kent Muckel. Possibilities includelong/short equity and global macro funds. In particular, thereare opportunities with several top managers who have opened recently tonew investors, said Muckel. (continued on page 15)

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NONPROFITS EXAMINE MLPS Master Limited Partnerships (MLPs) are becoming increasingly

popular with endowments and foundations as a play on energy infrastructure.MLPs engage largely in natural gas, crude oil and refined products and coal production. Aspublicly-traded securities, they are both liquid and non-correlated sources of inflationhedging. FEMM Contributing Reporter Joseph D’Allegro spoke with Douglas Rachlin,managing director at Neuberger Berman and portfolio manager for the Rachlin Group,


FEMM072709 7/23/09 10:39 AM Page 1

Foundation & Endowment Money Management www.foundationendowment.com August 2009

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Morgan Creek’s Hennessy DefendsEndowment ModelMike Hennessy, founding partner at Morgan Creek Capital Management, hascome out in defense of the endowment model. As a result of several articles in themainstream news media that were highly critical of endowments’ returns over thepast year, Hennessy penned an open letter. “The discourse in my mind wasridiculous,” he told FEMM. Hennessy noted that just because most endowmentssuffered last year, does not mean the model was flawed. “As was the case withMark Twain, reports of the death of the endowment model have been greatlyexaggerated,” the letter says.

Endowments suffered during the past fiscal year largely because of liquidityproblems, according to Hennessy. Some endowments became too aggressive withtheir private equity allocations to the point of relying on seasonal tuitionpayments to help fund capital calls. “I am surprised that some practitioners seemto have cast aside an essential precept that has always been integral to theendowment model: have a sufficient amount of liquidity available!”

Endowments Over Commit To Private EquitySeveral of the largest university endowments have invested heavily in privateequity, and may have stretched themselves too thin, according to a recent reportby NYPPEX Private Markets. Among those with the largest liquidity crunch areYale University, Massachusetts Institute of Technology, Harvard University,Notre Dame University and Northwestern University, the report says.

There is a chance during the latter half of the year that some schools may nothave enough cash on hand to meet capital calls, said Larry Allen, managingmember. The schools came into this predicament by overloading on private equityinvestments, particularly those with 2006, 2007 and 2008 vintages, he noted. Theendowments should be able to meet the capital calls without having to sell privatestakes, but there is little room for error in managing liquidity, Allen cautioned. TheUniversity of Virginia Investment Management Company may sell some of itsprivate equity investments on the secondary market, but has not done so yet, CEO

Christopher Brightman told FEMM through aspokeswoman.

The endowments have been able to meet theircapital calls using a variety of methods, includingselling liquid securities and issuing debt.However, despite these efforts, some schools arestill in a tough liquidity situation, said Allen.NYPPEX calculated the net liquidity for 15 ofthe largest endowments taking into account theschool’s cash, cash equivalents and the differencebetween their accounts receivables and payables.It also used an assumption that 20% of theendowments’ unfunded private equity capitalcommitments would likely be called in the nextyear.

Officials at the endowments either declined tocomment or did not return calls by press time.

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Liquidity To Estimated Capital Call Ratios

UNIVERSITY RATIOYale University 0.03xMassachusetts Institute of Technology 0.06xHarvard University 0.27xNotre Dame University 0.34xNorthwestern University 0.56xUniversity of Chicago 0.63xPrinceton University 0.72xStanford University 0.75xUniversity of Virginia 0.97xUniversity of Michigan 1.12xUniversity of Texas 2.42xCornell University 2.75xColumbia University 2.86xDuke University 3.10xUniversity of Pennsylvania 4.08x

Source: NYPPEX Private Markets

FEMM072709 7/22/09 5:25 PM Page 2

August 2009 www.foundationendowment.com Foundation & Endowment Money Management

Arizona Foundation Eyes Private EquityThe Arizona Community Foundation islooking at private equity with an aim toward

making a maiden investment. The Phoenix-based foundation’sroughly $200 million portfolio is checking out secondary privateequity and distressed debt opportunities, said Paul Velaski, cfo.The fund is keen on secondary private equity because otherinvestors’ liquidity concerns have created buying opportunities, henoted. Also, there are attractive returns in the distressed debt spaceand given the foundation’s liquid portfolio, it can afford to takeadvantage of these opportunities, explained Velaski.

The fund had a 10% allocation to alternatives, but earlierthis year decided to double its target exposure. Any moves inprivate equity will be small, likely around 2-5% of theportfolio, said Velaski.

The foundation also decided earlier in the year to utilize moreactive management for its equity portfolio. It hired Dodge &Cox and Southeastern Asset Management to each manage a10% allocation for domestic large-cap equity. It decided toswitch from passive to active management because it felt thatover the long haul some managers could provide alpha in thisarea, explained Velaski. The fund is advised by StratfordAdvisory Group.

Colorado To Increase Global FocusThe University of Colorado Foundation willtake a more global approach to its investmentportfolio following the recent move of CIOChris Bittman to Perella Weinberg Partners.Bittman, who is now cio of Perella’s assetmanagement group, is still managing the entire$874 million portfolio for Colorado, whichoutsourced management to his new firm.

Bittman, and his two staffers, have joined Perella Weinberg,where he now commands a staff of 15. With the increasedmanpower, the ability to focus on more global investments willbe enhanced, Bittman told FEMM.

The Buffaloes decided to outsource the portfolio because itwas becoming cost prohibitive to field a larger investment office,said Bittman. At full strength, the office consisted of fiveinvestment professionals, but there has been recent turnover, andstaffers left to take cio jobs. Most recently, Kent Muckel leftColorado to become cio at Baylor University (FEMM, 4/27).“We’d been the farm team for people with deeper pockets,”Bittman quipped. The asset management group is based in

Austin, Texas, but Bittman will remain in Denver and run thegroup from the Mile High city.

Bittman’s move closely follows that of Carla McGuire, cio ofDePauw University, who left to join Hammond Associates(FEMM, 3/30). DePauw outsourced the portfolio to Hammond,where McGuire continues to manage it as well as other accounts.

Other firms providing the same type of service includeInvesture, which counts among its clients Dickinson College,Barnard College and Smith College, and SEI, which managesthe portfolios of North Carolina State University, St. LawrenceUniversity and Bristol University.

Iowa Boosts Real Estate AllocationThe board responsible for overseeing the endowments of theUniversity of Iowa and Iowa State University has doubled theirexposure to real estate to 10%. The board invested roughly $8million in the Metropolitan Real Estate Partners Global III fund.The fund of funds invests in distressed, global and value-addedreal estate funds, said Patrice Sayre, chief business officer of theBoard of Regents, State of Iowa.

Earlier this year, the board also tapped State Street GlobalAdvisors for a $17 million international equity mandate. Themoves flow out of an asset-allocation study done by the board’sconsultant, Wilshire Associates (FEMM, 1/5).

Iowa’s endowment is $249 million, and Iowa State has a $107million endowment.

Alaska Cools On Illiquid PlaysThe University of Alaska Foundation, which has about $250million of endowment and operating fund assets, has soured onfinding new illiquid investments. The Fairbanks school isexamining its asset allocation with an eye toward increasingliquidity and is probably going to avoid illiquid plays for the nexttwo years, said CIO Tammi Weaver.

The school had been opportunistically looking to boost its realestate allocation, but has put that move on ice and is no longerlooking at prospective managers. “If we were to evaluate theirtrack records, they would all be out of whack,” Weaver said.

Alaska is taking the new tact following a tight liquiditysituation in the fall. It had invested its cash allocation inCommonfund’s Short-Term Fund but was unable to access itscapital when the fund limited withdrawals. This caused thefoundation to sell liquid investments to meet capital calls, saidWeaver. While Alaska has received the bulk of its money backfrom the now defunct money market fund, the cash came backtoo late for the capital calls, she noted.

The foundation is also examining the asset allocation of the

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Chris Bittman

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much larger Alaska Permanent Fund, which has adopted non-traditional asset categories, said Weaver. The investmentcommittee is interested in the public fund’s activities becausesome of the members are also involved with the PermanentFund. The school will not be able to exactly duplicate thestrategy because it is significantly smaller and has fewer staffingresources, she noted.

Texas School Fund Taps NEPCThe board of the Texas Permanent School Fund has selectedNEPC to advise the $17 billion system on investments. R.V.Kuhns & Associates, the incumbent, was the other finalist. TheLone Star fund decided to issue an RFP last year after accusingR.V. Kuhns of trying to rig the decision making process in aseparate consultant search (FEMM, 9/1). The investmentcommittee was impressed with NEPC’s expertise in investmentadvisory services and alternatives, a trustee said. He added thatNEPC can help the fund implement its new asset allocation andfurther branch out into alternatives.

The fund last year carved out a 20% allocation to alternativesthat would include real estate, private equity and real assets. TexasPermanent has also been interested in opportunistic investmentslately, which NEPC has been a proponent of, and the firmshould help the fund expand into this space, the trustee said.

Nunavut Eyes Real EstateThe roughly CAD1 billion NunavutTrust is closing in on itsfirst real estateinvestment, but hassoured on privateequity andinfrastructure. Thefund had beenplanning to add allthree asset classes thisyear (FEMM, 1/5) but hasdecided to only go ahead with real estate, said AndrewCampbell, ceo.

Nunavut plans to invest about CAD25 million in a Canadianreal estate fund and has identified a manager, Campbell noted,declining to name the firm. The trust is conducting due diligenceand wants to negotiate a key-man clause with manager as well asa no-fault divorce clause, which will allow the limited partners toreplace the general partner, he said. There is also some concernabout the investment becoming a specified investment flow-

through (SIFT) partnership because it would create taxcomplications for the trust, said Campbell. A partnershipinvesting in Canadian real estate can be subject to additionaltaxes if it’s deemed to be a SIFT.

Nunavut has pulled the plug on private equity because it nolonger likes the J-Curve, said Campbell. In particular, the eventsof the past nine months in the financial markets have made itwarier of illiquid investments, he noted. The trust has decided toput off indefinitely its plans to move into infrastructure afterinterviewing managers. The problem with the asset class is that itdoes not provide the amount of diversification the trust thoughtand its valuations have yet to bottom out, said Campbell.

West Florida Reviews PortfolioThe University of West Florida Foundation is reviewing itsroughly $52 million portfolio. The annual study is beingconducted by the fund’s consultant, Morgan Keegan, said SusanStephenson, executive director. The annual exercise examines theasset allocation and compares the school to its peers in theNational Association of College and University BusinessOfficers study. Last year’s endeavor resulted in additional privateequity investments, she noted.

West Florida recently wrapped up a consultant search,retaining Morgan Keegan. The foundation had issued a requestfor proposals and received 16 responses (FEMM, 4/27). TheAtlanta-based consultant has a four-year contract.


Searches (cont’d)

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FEMM072709 7/22/09 5:25 PM Page 4


Man Institutional Chief ExitsClayton Cheek, executive v.p. and head of U.S.

institutional relationship management at Man Investments, leftthe firm last week. Man is seeking a replacement for Cheek.Spokesman Armel Leslie declined to comment on thecircumstances of his departure. Uwe Eberle, president and ceo,also departed in the spring and was replaced, in part, by MartinKeller who now oversees institutional business for NorthAmerica and Europe. He previously only handled Europeanclients. Keller has also taken on Cheek’s responsibilities in theinterim. Cheek and Eberle could not be reached

Separately, Man has also laid off seven retail distributionstaffers last week. The firm is now focusing its efforts oninstitutional business, Leslie said. Man last year began combiningits subsidiaries, Man Global Strategies, Glenwood Capital


PeopleInvestments and RMF under one platform and is now lookingto pitch integrated offerings to institutions.

Morgan Stanley Nixes Exec SearchMorgan Stanley Investment Management, which has beenseeking a ceo to head up the asset management practice since lastyear, has decided against hiring one. The firm has decided it ispleased with its current leadership by two co-heads, Stu Bohartand Stephen Trevor, a spokeswoman said. Trevor handles themerchant banking part of the business, while Bohart deals withall the non-merchant banking units. As of Dec. 31, the firm had$398 billion in assets under management.

According to previously published reports, executive searchfirm Jamesbeck Global Partners was helping Morgan Stanleywith the search for a ceo. Ashton McFadden, managing director,did not return a call.

Marketing StrategiesCogoWolf Launches Hybrid Fund of Funds

CogoWolf Asset Management haslaunched a hybrid fund of funds which willinvest in managed futures, exchange tradedfunds and specialized debt. PresidentRachel Minard said CogoWolf decided tolaunch the Trimaran Liquidity Fund inorder to create a fund of funds with littledependence on the global equity markets

and with easy liquidity—capital is available monthly with a10-day notice. The fund was named after the trimaran boat,which has three hulls.

The firm selected its three buckets through back-testing tofind areas it believes have little correlation to the overall marketand to each other. While CogoWolf is a fund of hedge fundsfirm, for Trimaran the only bucket which will be investing inunderlying managers is managed futures, which will compriseonly 10-15% of the total book. The rest of its investments will bedirectly into ETFs or specialized debt.

The fund will have a $500,000 minimum investment with a1/10 fee structure. As with its flagship fund, CogoWolf will offerseparately-managed accounts for Trimaran. Minard said the fundis launching with about $600 million in the pipeline forinvestments, and a capacity of $3 billion.

San Francisco-based CogoWolf also manages the CogoWolf

Global Strategy Fund. The fund has a bit less than $100 millionunder management, but Minard said she hopes to grow it to$250 million in the next six months.

Foundations Take Nose Dive In ‘08The average return for independent andcommunity foundations last year was -26%,versus gains of almost 10% in 2007,according to a recent study by CommonfundInstitute. Foundations’ U.S. equity positionsdropped to 27% from 32%, and alternativesallocations increased to 36% from 28%, saysthe study of 290 funds.

As equities began to decrease, many foundations were also inneed to liquidity and had to sell off some of their more liquidholdings into a declining market, said William Jarvis, managingdirector. Non-marketable alternatives valuations meanwhile tendto lag several quarters because the reporting mechanisms for privateequity, venture capital and real estate funds are slower, he noted.

Foundations’ marketable alternative investments, whichinclude hedge funds, returned an average of -19.4% last year.Compared to long-only international equities and domesticequities, which returned an average of -41% and -36.3%,respectively, hedge funds fared better and protected foundations’downside risks, said Jarvis. “It seems that hedge fund strategiesworked to some extent,” he noted.

William Jarvis

Rachel Minard

FEMM072709 7/22/09 5:25 PM Page 5

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Nonprofits Boost Fixed Income, Non-Marketable AltsNonprofits are increasing their allocations to fixed income andnon-marketable alternatives, according to a recent study by SEI.The study, which polled 160 nonprofits, found that 71% weremaking changes to their asset allocation as a result of currentmarket conditions. Of those making changes, 69% are uppingtheir exposure to fixed income, while 67% are increasingallocations to non-marketable alternatives. SEI officials were notavailable to comment at press time.

Nonprofits are also decreasing their exposure to U.S equity,non-U.S. equity and hedge funds. Sixty-three percent of thosemaking changes to their asset allocation are decreasing theirallotment to non-U.S equity, while 58% are decreasing hedgefunds and 56% are lowering their investments to U.S. equity.

The survey found a vocal minority upset with theirconsultants. Of those respondents that use a consultant, 45% feltthere should have been a higher level of proactivecommunication by consulting firms during the recent marketmalaise. One quarter of respondents noted they had to take theinitiative themselves to engage the consulting firm.

Hedge Funds Exercise Caution OnSide LettersAs hedge fund managers come under five about fiduciaryresponsibility, they are turning their backs on side letters whichgive one party an advantage and put other investors at adisadvantage by dictating different terms than the fund’s standardoffering documents, reports FEMM sister publication AlternativeInvestment News.

It’s the side letters which dictate greater liquidity and/or morefrequent data reporting which are—and need to be—on the outs,believes Neil Morris, a partner at consultancy Kinetic Partners.

Michael Meyers, founder of Arcoda Capital Management,sees side letters as nothing more than preferential treatment—treatment which has been criticized by other investors as well asthe Securities and Exchange Commission in the past year ascertain clients have been able to redeem money, or getinformation, more readily than others.

Meyers said he takes particular issue with the differentreporting standards. This is where side letters can get in the wayof fiduciary responsibility, he noted, as in some cases certain big-time investors were receiving, say, weekly positions for fundswhile all other investors were receiving monthly position data.

Morris said while he believes the SEC should not get involved

in forbidding all side letters as they’re privately-negotiatedagreements, he does think it’s a good idea for the SEC tounderstand different side letter terms, making sure they do notput any investors at a disadvantage.

Ulf Nofelt, managing director of Scarsdale, New York-basedUNConsulting, said that while in his experience hedge fundmanagers aren’t getting rid of side letters entirely—legally thatmay be tricky—they are a lot more cautious in re-writing andnegotiating new ones. “They will be used less and less goingforward,” Nofelt said. Morris agreed. “Side letters will be morethe exception rather than the rule,” he explained.

One $500 million fund of funds manager told AIN that manyfunds are either canceling side letters outright or declining toprovide them. He said his firm has received a fair number of sideletters over the years, and when he is now establishing newrelationships he will request special liquidity agreements, forinstance. “In the past they would be willing,” he said. “Nowthere’s been a pushback.”

Still, for the cash-strapped, side letters have their benefits ifwritten up carefully. Paul Jablansky, co-founder and managingpartner of 400 Capital Management, said his firm has no plansto offer a side letter to clients, but if a “very big investor” were todemand one from 400 Capital, he said he’d consider it, and mostlikely give in. “Smaller managers who right now are hungry forbusiness will negotiate them if it will bring in money,” Nofeltacknowledged.

SEI: Hedge Fund Strats Offer Opportunities

Some hedge fund strategies continue topresent good investment opportunities forendowments and foundations, according to arecent report by SEI. In particular, event-driven funds will offer opportunities becausethey are not dependent on leveraging returns,said Carolyn McLaurin, v.p. and managingdirector of the firm’s nonprofit group. Direct

loan and turnaround specialists are expected to thrive, ascompanies that banks won’t touch increasingly need financing.

The other sea change has been an increase in investors’.Nonprofits can now extract better terms from managers in areassuch as transparency, fees and operational scrutiny, saidMcLaurin. “It’s not that it’s a buyer’s market, but the tide haschanged where the investor has more say,” she added. Part of thishas to with a decreasing number of hedge funds. In 2008, 1,471firms closed shop, 70% more than in the previous year.

Marketing Strategies (cont’d)

Carolym McLaurin

FEMM072709 7/22/09 5:25 PM Page 7

James Lanier, Senior Fellow for Board Education, ASSOCIATION OF GOVERNING BOARDS OF UNIVERSITIES AND COLLEGES

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UN Promotes Responsible Property InvestmentThe United Nations is set to launch a series of toolkits aimed athelping investors understand and apply the principles ofresponsible property investment. Responsible investment is fastmoving up the agenda for many institutional property investorsaround the world, said Paul McNamara, co-chair of the PropertyWorking Group at the United Nations Environment ProgrammeFinance Initiative. However, many remain uncertain about howbest to implement the practicalities of RPI, he added.

McNamara, who is also head of research at PrudentialProperty Investment Managers, said that there is a growingwillingness among property investors to take action and addressESG issues, such as climate change, which property ownershipand management raise. The toolkits are designed to showinvestors how best to apply RPI principles across all aspects of theinvestment process, he explained.

The first toolkit, Committing and Engaging, uses case studymaterial to identify the seven main steps organizations need to taketo lay down a solid foundation to institutionalize RPI. McNamarasaid these steps include understanding the meaning and value ofRPI for an organization, identifying material risks andopportunities, managing and measuring success, and collaboratingwith stakeholders to develop and mainstream RPI practices.

Hedge Fund To Tackle Global Water ShortageCF Partners, the private London firm focused on environmentalinvesting in commodities, will open to outside investors bylaunching an unusual water infrastructure fund and a carbonrelative-value hedge fund. Partner Simon Glossop told FEMMsister publication Alternative Investment News the water strategywill launch either late this year or early in 2010; the relative-valuefund—the firm’s second carbon strategy but its first available toexternal clients—will roll out before the water fund.

Glossop said he wanted to set up his own water fund in orderto find a new way to invest his own money in the commodity. Asthe world’s population rises, he believes water will increasinglypose a supply problem. “In a shortage situation, water is morevaluable than oil when you really cut to the chase,” said Glossop.“As a commodity, and as an issue, it’s not going to go away.”

Most existing water funds are essentially long/short equitystrategies, observed Glossop. By contrast, CF Partners’ fund “willlook to get as close as possible to water as the underlyingcommodity asset class,” he said. The fund will invest in pipelines,dam projects and desalinization processes, and will also seek toincrease efficiency by investing in maintenance and repair

companies tasked with reducing leakage from pipelines. Thefund will also have the ability to short water-based equities.

The fund will have a private equity-like structure and is likelyto employ a lockup, though Glossop was unable to provide atime horizon for the investment opportunity.

Separately, the relative-value CF Carbon Fund will seek tobenefit from pricing inefficiencies and dislocations in the carbonmarkets to return 20% net each year. The firm is seeking to hireco-portfolio managers for the strategy.

Ex-CIO Of Blackstone Arm LaunchesLong/Short FundManish Mittal, the former chief investment officer of BlackstoneKailix Advisors, the hedge fund arm of The Blackstone Group,has formed his own firm, Kailix Investment Advisors, andlaunched the Kailix Fund, a long/short global equity strategy.Calls to Mittal at the New York-based firm were referred toEmily Reycroft, who did not return calls or respond to an e-mail.Further details could not be ascertained.

Mittal was the cio at Kailix from 2006-2009. Previously heworked at Perry Capital and SAC Capital Advisors. Peter Rose,a spokesman at Blackstone, declined to comment.

Liontrust Hires GAM Team Liontrust Asset Management has tapped a quartet from GAMto set up its global equity business. Ross Hollyman, investmentdirector at GAM, and his team of three will join Liontrust todevelop three global equity strategies—Global Value, GlobalEarnings Surprise and Global Multi-Factor—to be launched at thebeginning of next year. Hollyman, who will join in January2010, is responsible for U.K. and European equity long-only andlong/short portfolios at GAM. Portfolio managers Nikki Martin,Rob Cornish and Tom Ayres will join Liontrust in October.

Liontrust, originally a U.K. equity specialist, has recently setup a fixed-income team as well as a European equity capability.Spokesman Simon Hildrey said global equity is the next logicalstep, particularly with increased demand for global mandatesfrom its existing clients.

Martin performs qualitative and quantitative analysis on U.K.and Pan-European equity long/short and long-only funds atGAM. She will focus on the Global Earnings Surprise fund atLiontrust. Cornish will concentrate primarily on the Global Valuefund, while Ayres will handle the Global Multi Factor strategy.

Janine Bunker, GAM’s spokeswoman, said all four willcontinue to manage GAM’s funds until they leave. The manageris considering hiring replacements externally as well as internally,she added.

FEMM072709 7/22/09 5:25 PM Page 9

Asset AllocationThe school has a broadly diversified portfolio that allocates 27% toU.S., EAFE and emerging markets public equity, 26% to real assetssuch as real estate, timberland, natural resources and inflation-indexed bonds, 17% to private capital, 16% to marketablealternatives, and the remainder to fixed income and cash.

Anjum Hussain, director of risk management, has developeda proprietary system over the last three years to provide Staleyand her five-person investment team an almost-real-time view ofthe asset allocation, including the risk versus benchmarks and thedaily cash position. “Being able to precisely manage exposuresrelative to benchmarks added to our ability to be nimble,” Staleyexplained. “For marketable equities, the system also provides theability to view exposures relative to the relevant benchmark as itrelates to region, country, sector and industry. This allows us toview the bets taken by our managers at the individual fund level,as well as at the aggregate level, and to hedge risks should theyexceed tolerance levels.”

Case Western Reservetypically reviews its assetallocation on a biannualbasis, but in response to theextreme market moves of thelast year, it accelerated theprocess by about sevenmonths the review that wasdue this September, withchanges put in place

effective April 1. “The most significant decision we adopted wasto decrease EAFE public equity exposure and spread additionalallocation to U.S. public equity, private capital and real estate forthe perceived relative opportunities unfolding in those sectors,”said Staley.

The school chooses managers based on extensive due diligencecriteria, but the two most important are “fit” and valueproposition. A manager’s “fit” includes how well its risk/returnprofile would complement the existing group of funds, whereasthe value proposition focuses on a deep understanding of how amanager’s investment track record has been created and why it isexpected to continue into the future, said Staley.

Personal Staley joined Case Western Reserve in 2002 as associate treasurerand was promoted to cio in 2006.

Staley holds a Master of International Affairs degree fromColumbia University and a Bachelor of Arts degree from TheCollege of Wooster. She serves as an investment committeemember for three non-profit organizations, including Wooster. Sheenjoys gardening and seeing live performances in her free time.



Case Western Reserve Takes Active StanceCase Western Reserve University has taken a hands-on approachto managing its roughly $1.5 billion endowment. The schoolspent the past fiscal year constantly tweaking its portfolio tominimize risk. “Although we have not escaped a fiscal year ofsteeply negative returns, we have attained a strong relative out-performance against our market benchmarks and against theresults of other endowments and foundations,” said Sally Staley,cio. For the year ending June 30, the endowment’s estimatedreturn is expected to fall into therange of -16% to -19%.

The fund terminated severallong-only equity managers basedon performance, risk and portfoliopositioning in the last year. Staleynoted that the fund partiallyreplaced them with passive betaexposure and stayed significantlyunderweight to marketable equitiesbecause liquidity has been such a big priority. “It also has becomeobvious that nearly every fund and manager that has ever been onour ‘wish list’ but not open for new investment is now very happyto accept, and even solicit, new endowment investment clients,”she said. “This has triggered a strategic re-thinking of our currentand potential manager relationships and likely will lead to somerealignment of our manager line-up,” said Staley, declining toelaborate.

As the markets declined and volatility spiked, the endowmentsought to explore strategies that capitalized on the dislocation involatility. In November, it began to gradually dollar-cost averageinto several strategies that buffered downside in equities butmaintained upside capture. “This in effect allowed us to hedgeupside risk versus the benchmark while continuing to stayunderweight and protect liquidity,” Staley noted. In Decemberand January, the fund reduced its passive exposure to equities andbegan to add exposure through equity index futures. TheSpartans have deliberately maintained very limited participationin large and mega-leveraged buyout funds, and this helpedreduce the damage in this sector as the credit crisis deepened,Staley noted.

“Nearly every fund and manager thathas ever been on our ‘wish list’ butnot open for new investment is nowvery happy to accept, and even solicit,new endowment investment clients.”

F U N D F O C U S

Sally Staley

FEMM072709 7/22/09 5:25 PM Page 10



Kevin Welsh, senior managing director at Kayne AndersonCapital Advisors, and Jaeson Dubrovay, senior hedge fundconsultant at NEPC, about MLPs.

FEMM: Why might a nonprofit invest in MLPs?

Welsh: As energy demand in the U.S. continues to grow, it willbe critical to have the infrastructure in place to meet theincreasing demand. MLPs may be viewed as a liquid means toinvest in infrastructure. The current yield from distributions isapproximately 9% and the growth of distributions is expected toexceed 5% for 2009, generating an implied yield-plus-growthreturn of 14%+. The 2009 year-to-date total return for theAlerian MLP Index was 32.7% through June. MLPs can alsoprovide a good hedge against inflation. Many pipeline MLPshave annual inflation adjusters build into their contracts. MLPinvestors are entitled to quarterly distributions that haveincreased by more than 8% annually during this decade. Further,MLP prices and returns have historically had a low correlation toinflation or interest rates and little or no correlation tocommodity prices.

Rachlin: A nonprofit organization may wantto invest in MLPs to participate in the growthof a unique group of companies with a historyof demonstrated low correlation to thebroader markets. MLPs can provide anattractive total return opportunity throughboth current income and capital appreciation.Since MLPs pay most of their earnings in

distributions to their unitholders, nonprofit investors can rely onMLPs to pay consistent and growing income streams. However,nonprofit organizations should be aware of the tax implicationsof investing in MLPs; as with any passive investment, they cangenerate Unrelated Business Taxable Income.

Dubrovay: MLPs have significantly outperformed the Standard& Poor’s 500 since 1998, with beta of 0.31 during that timeframe. In addition, the fixed-rate nature of some of themidstream contracts serves as an inflation hedge. I believe thatinvestors will be paid a “pioneering premium” as moreinstitutions discover the benefits of these investments. MLPsare misunderstood in the marketplace and, as a result, theirpricing is inefficient. The underlying return stream of this

NONPROFITS EXAMINE MLPS

investment is very attractive due to its stability and defensivecharacteristics.

FEMM: What are the risks, and are these investments transparent?

Rachlin: MLPs are fully transparent in that they are publiclytraded on major exchanges. The risks are similar to those ofinvesting in the broader equity markets. Despite the high payoutratios and bond-like characteristics of MLPs, they trade as equitysecurities. Their operating businesses can fluctuate and equitymarkets can gyrate. Generally speaking, MLPs have stablebusiness models that provide recurring cash flows to theirinvestors. Also, the fees that pipelines charge are highly regulatedby the government, resulting in additional regulatory risk. Aswith high-yielding equities, MLPs are often more appealing toinvestors at times of low interest rates, as this results in higheryields relative to bonds and money market instruments.

Dubrovay: The primary risks in MLPs arevolatility in the stock price due to a high retailconstituency and perceptions about whetherdistributions will be cut, which will impactstock prices negatively. This is particularlytrue in the relatively younger and less matureupstream MLPs, such as those in theexploration and production and gathering and

processing. These upstream MLPs have more exposure tocommodity prices. Given the increasing involvement ofinstitutional investors in this sector, transparency is improving allthe time.

Welsh: The MLP universe is a heterogeneous group with a widevariety of operating and financial performance characteristics. Ingeneral, their cash flows can be affected by general economicactivity and specific operating characteristics of their businessenterprise. They are also subject to capital market risks as theyneed to regularly access external capital, both debt and equity, asthey distribute the bulk of their cash flow.

FEMM: What sort of MLP managers shouldnonprofits look for?

Welsh: The due diligence for selection of aMLP portfolio manager should not bediscernibly different than for other publiclytraded securities. A nonprofit should research

(continued from page 1)

Kevin Welsh

Douglas Rachlin

Jaeson Dubrovay

FEMM072709 7/22/09 5:25 PM Page 11


the firm structure and ownership, its investment process, depthand breadth of research team and support organization, and themanner in which it generates returns. One area of particularfocus should be if the manager has energy expertise. There arenow in excess of 70 MLPs, and when one includes traded generalpartners, institutional shares, and related issues, the total universefor potential equity and debt investment exceeds 130 securities.The coverage of such a diverse group of public and privatesecurities requires a research team with significant breadth, depthand research tools to fully exploit the MLP market opportunities.

Rachlin: Since the MLP sector is unique, nonprofits should lookfor a manager with a transparent, long-term investment trackrecord demonstrating expertise in the sector. We believe that aseparately managed account is the best structure for a nonprofitto own individual MLPs as it minimizes transaction costs andprovides the fullest amount of transparency for the nonprofitinvestor.

FEMM: How are energy prices likely to affect the MLP market inthe near- and long-term?

Dubrovay: Currently energy prices affect about 11% of the MLPmarket—specifically MLPs in the exploration and productionand gathering and processing sectors. Depending onadministration policies on energy independence, as more interestdevelops in this area and more resources are dedicated toupstream assets, energy prices may play a more prominent role inMLP prices.

Welsh: The movement and level of energy prices can have adiverse effect on the MLP market sectors and individualcompanies. Transportation pipeline MLPs generally have a lowcorrelation to energy prices as their cash flows are driven more byvolume than energy prices, and there are moderating effects ontheir results should high or low energy prices prevail. Forexample, most intrastate and/or interstate natural gas pipelineand storage operators generate revenues that consist primarily offixed-capacity reservation charges. These contracts ensure thatpipeline and storage operators will be paid even if the service isnot provided. Pipeline cash flows grow with an increase involume throughput therefore they benefit the most frommoderate energy prices that support continued economicgrowth.

Rachlin: Our focus is primarily on the midstream MLP namesthat provide transportation and storage services for producers andusers of energy products. Commodity prices have little effect onthe underlying fundamentals of the businesses we own. TheMLPs we own typically do not take ownership of the commodityto limit their risk to price fluctuations, but rather charge a fee fortheir services based on volumes in their systems. Cash flows areunderpinned by long-term fee-based contracts predicated onthese volumes and throughput. That said, energy prices atextremes can affect demand for products and therefore impactthe earnings of MLPs. In short, energy prices may have a smallershort-term effect on the movement in MLP share prices, but overthe longer term, commodity prices may have minimal influenceon the underlying businesses.

In 2008, iisearches posted details of morethan 2,000 mandate awards from namedfund sponsors to investment managersworth $350 billion…

...grow your business with the latest daily search leads.

For further information on iisearches’ daily search leads and searchable database of search-and-hire activity since 1995, visitwww.iisearches.com or contact Keith Arends in New York at 212-224-3533 or at [email protected], or

Ben Grandy (Europe and rest of the world) Tel: +44 (0)20-7779-8965 or at [email protected]

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FEMM072709 7/22/09 5:25 PM Page 12



Search DirectoryThe following directory includes search and hire activity for the past month. The accuracy of the information, which is derived from manysources, is deemed reliable but cannot be guaranteed. All amounts are in US$ millions unless otherwise stated. To report manager hiresand new searches, please call Mark Faro at (212) 224-3813, or fax (212) 224-3699.

Potential SearchesTotal Account

Fund & City Amount Assignment Size Consultant Comments/Firm Hired

Bryant University, Smithfield, RI USD120 US / Hedge Funds N/A Cambridge Associates, The fund will consider hiring a hedge funds manager within the Boston next six months.

Bryant University, Smithfield, RI USD120 US / Multi Asset N/A Cambridge Associates, The fund has placed two undisclosed managers for hedge funds Boston and domestic equity briefs on its watch list for performance related

issues.Morris & Gwendolyn Cafritz USD250 International / Active Equity N/A Bank of America, The fund has kept three of its international equity managers on watch. Foundation, Washington Charlotte, NCAlbuquerque Community USD37 Global / Asset Study USD37 Hammond Associates, The fund’s next portfolio review is slated to be conducted in the first Foundation, Albuquerque, NM St. Louis quarter of 2010.Andrew W. Mellon Foundation (The), USD4,200 Global / Asset Study USD4,200 Cambridge Associates, The fund plans to conduct its annual asset review later in this quarter.New York, NY BostonCarilion Health Systems, Roanoke, VA USD560 US / Hedge Funds / USD12 Highland Associates, The fund will review Austin Capital Management, which is on

Fund of Hedge Funds Birmingham, AL watch due to investments associated with Bernard Madoff. Carilion Health Systems, Roanoke, VA USD560 International / Active Equity USD25 Highland Associates, The fund will review Jarislowsky Fraser Limited, which is on watch

Birmingham, AL for underperformance, next month. Catholic University of America, USD165 International / Active Equity N/A Cambridge Associates, The fund is monitoring international equity incumbent, Acadian Washington, DC Menlo Park, CA Asset Management, which is on watch due to performance related

issues. Catholic University of America, USD165 US / Active Equity N/A Cambridge Associates, The fund is monitoring domestic large-cap growth incumbent, Washington, DC Menlo Park, CA Acadian Asset Management, which is on watch due to performance

related issues. Conrad N. Hilton Foundation, USD1,700 Global / Asset Study USD1,700 Cambridge Associates, The foundation’s asset study is scheduled to be conducted in August. Los Angeles St. LouisDrs. Bruce and Lee Foundation, USD120 Global / Asset Study USD120 Canterbury Consulting The fund plans to conduct its next asset review during the third Florence, SC Incorporated, quarter.

Newport Beach, CAFranciscan Missionaries of Our Lady USD800 US / Active Fixed Income N/A Cambridge Associates, The fund is contemplating a potential increase to its fixed income Health System, Baton Rouge, LA St. Louis allocation. Franciscan Missionaries of Our Lady USD800 Global / Asset Study USD800 Cambridge Associates, The fund plans to conduct its annual asset allocation study by year’s Health System, Baton Rouge, LA St. Louis end. Franciscan Missionaries of Our Lady USD800 US / Cash N/A Cambridge Associates, The fund is contemplating a potential increase to its cash allocation. Health System, Baton Rouge, LA Menlo Park, CAGeraldine R. Dodge Foundation, USD205 Global / Active USD10.25 Monticello Associates, The fund may boost its fixed income exposure to 10% from its Morristown, NJ Fixed Income Denver current 7% allocation. Greek Catholic Union of USD625 Global / Asset Study USD625 Citi Institutional Consulting, The fund plans to conduct its asset review next month.the U.S.A., Beaver, PA HoustonGuide Dogs For The Blind , San Rafael, CA USD230 US / Private Equity N/A R.V. Kuhns & Associates, The foundation may target secondary private equity investments.

Portland, ORHeidelberg College, Tiffin, OH USD28 Global / Asset Study USD28 Wachovia Securities Consulting The fund plans to conduct its next asset review in October.

Services, Richmond, VAHouston Baptist University, Houston USD76 Global / Active Equity N/A Cambridge Associates, The fund may increase its equity portfolio by up to 5%.

BostonJewish Communal Fund, New York, NY USD790 US / Active Equity N/A Unknown The fund may consider adding to its domestic equity roster. Jewish Communal Fund, New York, NY USD790 International / Active Equity N/A Unknown The fund may consider adding to its international equity roster. Mount Sinai Medical Center, USD1,000 US / Alternative USD20 Unknown The endowment is opportunistically scouting several alternative New York, NY investments, including global macro hedge funds, natural resource

investments and credit plays that could include residential mortgage-backed securities.

Northwestern Memorial USD1,900 US / Active Equity N/A Monticello Associates, The plan may consider hiring a domestic equity manager later this year. Hospital, Chicago DenverNorthwestern Memorial USD1,900 Global / Asset Study USD1,900 Monticello Associates, The fund is in the midst of an annual portfolio review. Hospital, Chicago DenverOhio University, Athens, OH USD250 International / Active Equity USD17 Unknown The fund is monitoring an undisclosed international equity manager,

which is on watch for performance related issues. Ohio University, Athens, OH USD250 US / Active Equity / USD7.50 Unknown The fund is monitoring an undisclosed small-cap equity manager,

Small-Cap which is on watch for performance related issues. OSF Healthcare System, Peoria, IL USD1,100 Global / Active Equity / N/A Stratford Advisory The fund is contemplating long term plans that may result in

Large-Cap Group, Chicago manager additions to its large-cap equity portfolio. Rush University Medical Center, Chicago USD850 Global / Asset Study USD840 CTC Consulting, Portland, OR The fund plans to conduct its next asset study during the fourth quarter.Sentara Healthcare System, Norfolk, VA USD914 Global / Alternative USD91.40 Highland Associates, The fund may ramp up its alternatives exposure to 10% from 7% by

Birmingham, AL year’s end. Southeast Missouri State USD32 Global / Asset Study USD32 Merrill Lynch Consulting The fund plans to conduct its annual asset study during the fourth University, Cape Girardeau, MO Services Group, quarter.

Beverly Hills, CA

For further information on iisearches’ daily search leads and searchable database of mandates awarded and lostsince 1995, please visit iisearches.com or contact Keith Arends at (212) 224-3533 or [email protected]

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FEMM072709 7/22/09 5:25 PM Page 13



Texas Children’s Integrated USD1,500 Global / Asset Study USD1,500 Cambridge Associates, The fund is in the midst of a bi-annual review of its portfolio. Delivery System, Houston BostonTexas Children’s Integrated USD1,500 Global / Consultant N/A Cambridge Associates, The fund may soon be in the hunt for an investment consultant. Delivery System, Houston BostonTexas Exes, Austin, TX USD65 Global / Hedge Funds / USD5 Holbein Associates, Dallas, TX The fund has kept an undisclosed opportunistic global hedge fund

Opportunistic manager on its watch list. The Queens Health Systems, Honolulu, HI USD480 Global / Active Fixed Income N/A Highland Associates, The fund is considering a potential increase to its 22% bonds

Birmingham, AL portfolio. University of Virginia Investment USD4,000 US / Alternative N/A Unknown The fund is may consider private equity, real estate and Management Company, Charlottesville, VA commodities.Western New England USD35.50 Global / Asset Study USD35.50 Cambridge Associates, The fund is in the midst of its annual asset study. College, Springfield, MA BostonWestern New England USD35.50 International / Active Equity USD3 Cambridge Associates, The fund is contemplating the addition of a third international equity College, Springfield, MA Boston fund to its roster.

New SearchesAustin Community College, Austin, TX N/A US / Multi Asset N/A None The endowment has issued a request for proposals seeking

investment advisory services. All proposals are due by Sept. 3,2009 with a selection expected on or about Sept. 18.

Updated SearchesAlbuquerque Community USD37 US / Active Equity USD0.53 Hammond Associates, The fund has terminated Dodge & Cox which managed a domestic Foundation, Albuquerque, NM St. Louis equity portfolio. Albuquerque Community USD37 US / Alternative USD2.20 Hammond Associates, The fund has terminated Silver Creek, which managed a $2.2 Foundation, Albuquerque, NM St. Louis million marketable alternatives brief. Baylor University, Waco, TX USD1,000 US / Alternative N/A Hammond Associates, The endowment is opportunistically looking at investments in

St. Louis several areas including hedge funds, distressed securities and energy.

Doane College, Crete, NE USD66 Global / Asset Study USD89 AMG National Trust The fund recently completed its asset study and has made some Bank, Englewood, CO global equity commitments to incumbent managers.

Greek Catholic Union of USD625 US / Active Fixed Income USD200 Citi Institutional The fund has terminated Sage Advisory Services from a $200 the U.S.A., Beaver, PA Consulting, Houston million bonds mandate, as it sought to reduce costs. Guide Dogs For The Blind, San Rafael, CA USD230 US / Active Fixed Income N/A R.V. Kuhns & Associates, The fund will increase its fixed income portfolio by 5% and has

Portland, OR hired an undisclosed manager. Guide Dogs For The Blind, San Rafael, CA USD230 Global / Asset Study N/A R.V. Kuhns & Associates, The fund recently completed its asset study with the assistance of

Portland, OR its investment consultant R.V. Kuhns & Associates and has decided to ramp up its fixed income portfolio by 5%.

Houston Baptist University, Houston USD76 Global / Asset Study USD76 Cambridge Associates, The fund has recently completed its asset study and has made an St. Louis initial investment of $2 million to alternatives.

Mount St. Mary’s College, Los Angeles USD78 US / Active Fixed Income USD3.08 Cambridge Associates, The fund has recently upped its fixed income allocations. Menlo Park, CA

Ohio University, Athens, OH USD250 US / Consultant N/A None The fund is currently in the midst of contract negotiations in its search for an investment consultant.

Ohio University, Athens, OH USD250 Global / Asset Study USD282 Unknown The fund has recently completed its asset study. Purdue University, West Lafayette, IN USD1,400 US / Alternative USD36 Cambridge Associates, The fund has dropped its plans to increase its alternatives exposure.

BostonPurdue University, West Lafayette, IN USD1,400 US / Active Fixed Income USD72 Cambridge Associates, The fund has decided against upping its LDI exposure by 4%.

BostonPurdue University, West Lafayette, IN USD1,400 US / Active Fixed Income N/A Cambridge Associates, The fund has removed an undisclosed pair of fixed income

Boston managers from its watch list, due to improved performance. Texas Permanent School Fund, Austin, TX USD17,000 US / Real Estate N/A Courtland Partners, The endowment has issued a request for qualifications seeking real

Cleveland, OH estate investment management services. All proposals are due by Aug. 18.

The Alvin & Fanny Blaustein USD19 US / Active Fixed Income N/A None The fund terminated Morgan Stanley Investment Management from Thalheimer Fndtn, Baltimore its bonds portfolio last year.University of Alaska USD250 Global / Active Equity N/A Callan Associates, The school had been looking to fill a core-global equity mandate, Foundation, Fairbanks, AK San Francisco but has put the move on hold. University of Alaska USD250 Global / Asset Study USD250 Callan Associates, Chicago The fund recently completed an asset allocation study.Foundation, Fairbanks, AKUniversity of Alaska USD250 US / Real Estate USD9 Callan Associates, Chicago The school had been opportunistically looking to boost its real Foundation, Fairbanks, AK estate allocation, but has put the move on hold and is no longer

looking at prospective managers.

Completed SearchesMorris & Gwendolyn Cafritz USD250 International / Active Equity USD11 Bank of America, AllianceBernsteinFoundation, Washington Charlotte, NCDoane College, Crete, NE USD66 Global / Active Equity N/A AMG National Trust Bank, Incumbent Managers

Englewood, CO

Potential Searches (cont’d)Total Account

Fund & City Amount Assignment Size Consultant Comments/Firm Hired

For the complete Search Directory, please visit www.foundationendowment.com

FEMM072709 7/22/09 5:25 PM Page 14


The new investment platform is different from the ShortTerm Fund in that it will allow endowments to customize theirown risk profiles, said Speare. Also, it will provide intra-dayliquidity and the front-end will operate like an electronic bankaccount, he noted.

So far, the schools that had been burned by the redemptionshalt are willing to consider giving Commonfund another chancewith the new platform. The University of Alaska Foundation,which has since cooled to new illiquid investments, is now usinglocal banks for its cash management needs but will examine thenew Commonfund offering, said Tammi Weaver, cio. “They[Commonfund] recognized that investors don’t want to put alltheir money in one place,” she noted.

“We need to make sure we don’t have all our eggs in one nest,”

COMMONFUND READIES(continued from page 1)

because it tends to do well in dislocated markets and when thereis heavy government involvement in the markets, said Pittman.

The hospital prefers natural resources investments that wouldfocus on metals and mining. But it does not want muchcommodities volatility, so prefers a controlled investment orhedge fund trading strategy, said Pittman. Mount Sinai is alsointerested in distressed credit plays but wants to avoid directionalbeta investments, which makes RMBS more appealing, he noted.

—M.F.

MOUNT SINAI(continued from page 1)

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Size will depend on strategy and risk. Baylor has traditionallymade allocations of $5-10 million, but Muckel is looking toincrease that for certain situations. For example, an establishedcredit manager could get a $20 million mandate, whereas astartup venture capital firm would not get as large anassignment, he said.

Baylor is also interested in possible distressed plays involvingcorporate debt or real estate. Although there are opportunities, theseinvestments do present liquidity issues, said Muckel. “It’s a tradeoffbetween maintaining a degree of liquidity and opportunities thatprovide meaningful returns five years down the road,” he explained.

The endowment is keeping an eye on the energy sector as itaims to diversify its holdings beyond oil and gas. Possibilitiescould include energy infrastructure or midstream investments,said Muckel.

Baylor has also looked at term asset-backed securities loanfacility (TALF) offerings but has decided to pass. Its main

BAYLOR EYES(continued from page 1)

concurred Allen Lacy, investment manager at University ofArkansas. The Razorbacks were also invested in the Short TermFund and have since commenced a search for multiple managersto handle its cash allocation (FEMM, 3/2). The university wouldbe open to working with Commonfund again for cashmanagement, but will wrap up its search before the new offeringhits the ground, he noted. Commonfund plans to roll out thenew investment in the late fall. —M.F.

FEMM072709 7/22/09 5:25 PM Page 15



FEMM’s Final WordEndowments Eat Sour Pie For many endowments the recent closure of the fiscal year couldnot come soon enough. In a year that saw a collapse of nearly allmarkets and asset classes, most endowments got shellacked whencorrelations moved to one. Simply put, it was a lousy year fordiversified investors, and the mainstream press has questionedthe viability of the “endowment model.” As a way to providesome comic relief, we’ve composed a little ditty basedon the classic yarn “American Pie” by Don McLean.

A long, long time ago…I can still rememberHow those gaudy returns used to make mesmile.And I knew if I had my chanceThat I could make those investmentcommittee members danceAnd, maybe, I’d score a large bonus for awhile.

But the credit market mess made me shiverWith every month in the red I’d deliver.Bad news on the doorstep;I should have believed that “Black Swan” concept.

I can’t remember if I cried When I read about Madoff ’s crimeBut something touched me deep insideThe year, the “endowment model” died.So bye-bye, mister hedge fund guy.

Overcommitted to private equity,But liquidity ran dry.And them’ good ole Ivy League boys were over diversified Singin, this’ll be the day the “endowment model” dies.This’ll be the day the “endowment model” dies.

Did your endowment drop over 20%,And did your choices cause you lament,Are you now hiding from the university president?

Do you believe in Treasuries,Can you be saved by secondary private equity,

And can you teach me about real diversity?

Well, I know you’re in love with illiquidityBut have you lost your sensibility?Your decisions have led to budget cutsBut wait, it’s really the market that wasnuts.

Even some money market funds screwed up,That’s what happens when they break the buck,

You should have known you were out of luckThe year, the “endowment model” died.

I started singin,Bye-bye, mister hedge fund guy.Overcommitted to private equity,But liquidity ran dry.And them’ good ole Ivy League boys were over diversified Singin, this’ll be the day the “endowment model” dies.This’ll be the day the “endowment model” dies.

Quote Of The Month“The discourse in my mind was ridiculous.”—Mike Hennessy,founding partner of Morgan Creek Capital Management, on themainstream media’s highly critical coverage of endowments (see story,page 2).

One Year Ago In Foundation & Endowment Money Management

Jonathan Hook, the long-time cio of Baylor University, left tojoin The Ohio State University as its first cio. [The Baylor Bearsreplaced Hook with Kent Muckel, senior portfolio manager atthe University of Colorado Foundation (FEMM, 4/27). Bayloris currently eyeing several alternative investments, includinghedge funds and distressed securities (see story, page 1).]

Tell Us What You Think!Foundation & Endowment Money Management is looking forfeedback on the nominees for the Nonprofit Awards forExcellence. Tell us who you think should win and why. Toparticipate, send an email to [email protected]. The winnerswill be announced at a gala event on Sept. 21 in San Diego. Formore information about the awards and the party, visitwww.nonprofitawards.com. Also, be sure to follow us on Twitterat www.twitter.com/FEMMNews.

concern is that investors won’t be able to realize the 15-20%returns touted by the managers, said Muckel. Returns havecompressed quite a bit and only those who got in very early willreap the benefits, he noted. —Mark Faro

FEMM072709 7/22/09 5:25 PM Page 16

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