Foundation and Endowment Investing: Philosophies and Strategies of Top Investors and Institutions

Larry Kochard and Cathleen Rittereiser have written a great book about the world of endowment and foundation investing. Why should we care? Because larger endowments and foundations have become investment powerhouses, managed by sophisticated investment professionals who are successfully generating superior returns. As one CIO asserts with only a bit of hyperbole, “The best investors in the world are the top 40 endowments.” Most of these non-profits became successful investors after creating internal investment offices led by top-notch Chief Investment Officers who subsequently built diversified and complex portfolios. “Foundation & Endowment Investing” interviews a dozen of these accomplished CIOs, providing great insight into what today’s best and brightest investors are currently thinking and doing. The first section of the book provide a brief introduction to the world of endowment management. Experienced professionals who work in this field will likely skim quickly through this section. Those unfamiliar with, or new to, this world will find a concise and solid history of endowment management “from the first gifts to Harvard [in the 17th century] to the important changes set in motion by [two studies from] the Ford Foundation…and the rise to prominence of foundation and endowment CIOs.” Also covered in Part One is a primer on foundation and endowment investing, covering basic, yet critical, topics as investment policy statements, policy implementation, governance, and alternative investments. The key attraction of this book is Part Two, where the authors interview a dozen current or recent endowment and foundation CIOs, including Bill Spitz (Vanderbilt University), Scott Malpass (University of Notre Dame), and Laurie Hoagland (Hewlett Foundation). These CIOs dispense their wisdom on a variety of subjects: proper governance; asset allocation; risk management; evaluating, hiring, and firing money managers; hiring and retaining staff; and career advice. Although one or two might still be considered up-and-comers, most of the CIOs profiled do indeed represent the top practitioners of the difficult art of endowment management. Because these CIOs are senior professionals with well-established reputations, they are surprisingly forthcoming and refreshingly honest, resulting in a minimum of spin and historical revisionism. Readers will certainly enjoy learning that a certain approach had to be terminated when “the results stank.” Another CIO laments the difficulty of managing a successful investment office in “bureaucratic institutions” holding a “near socialistic view of the world.” Some common keys to success emerge from these interviews. One is the crucial importance of a good governance structure. Most of these institutions long ago moved away from a committee-led investment process driven by consensus, to one where the CIO and his team were given the authority and flexibility to take action. There is little dissent among these CIOs that the groupthink emerging from a consensus-driven approach leads to comfortable, rather than profitable, decisions. Quoting a friend, one CIO says, “The only thing a board could do in 15 minutes with manager selection is make a mistake.” Governing boards or committees should “do what they do best, focus on the questions that only they can answer for that organization, like strategic issues, while delegating the day-to-day management [to staff].” A second recurring key to success is entering new asset classes and strategies years before the great herd of investors stampedes in and degrades the returns. Most of these institutions invested in emerging markets, venture capital, hedge funds, energy, and timber “well before others [saw] the merit.” “Early adopters do well; late adopters get killed.” One characteristic displayed by many of these top CIOs is a genuine contrariness—and not always limited to their investment approach! This valuable, but rare, investor trait leads to an ability, even a