When managing a portfolio at an endowment, most recognize two key components to investment returns: asset allocation and manager selection. But there is a third component that is mostly alluded to but rarely explicitly stated: time.
The WIO, like most endowments, holds a long-term strategy for its portfolio. Rather than investing directly in assets, it invests in managers who then invest in assets (a.k.a. a “fund of funds”). Without the pressure of short-term performance, the longevity of the office’s investment strategies, the school’s reputation and the leveraged personal relationships of the investment office has given the endowment access to some of the premier managers and firms in the industry.
It takes time to find out who are the best fund managers. It takes time to evaluate those fund managers and understand their business model. Finally, it takes time to partner with them and build a relationship.
That is, if they are open to new capital.
We look to partner with the best investment managers. Sourcing and selecting these managers is often a long process. Last year, we conducted more than 400 meetings with new and existing managers. It may take years to build a relationship with a successful investment manager. And after we establish a relationship with an investment manager, it may take years to make an investment. Many of the most successful investment managers are capacity constrained, meaning the manager may not be able to accept additional capital because the additional capital may impair their ability to prudently execute their investment strategy. We know that building and maintaining these relationships takes time and work. We will continue to work to be both a selective investor and a good partner to those managers with whom we invest.
Done right, the school makes more money.
In 2006, Chilton arrived at Williams as a breakout star of both the public and corporate pension worlds. She had no experience investing in hedge funds — and yet, over little more than a decade, she became nearly unbeatable. Her ongoing work, and that of her team, has already secured educations for generations of students to come.
The Williams endowment has roughly doubled under Chilton’s tenure at the Massachusetts liberal arts college, reaching $2.7 billion as of June 2018. Hedge funds make up about 40 percent of the portfolio, she says. Over the last decade, the fund’s returns rank in the top decile of U.S. endowments and foundations, and the investment office has added almost 40 basis points of alpha over its target annually.
Post by Marcelino Pantoja