Manager Relationships at Wesleyan Endowment

The school described their investment objective and how they aim to achieve it on their latest annual letter.

Given Wesleyan’s mission to provide a world-class liberal arts education to qualified students regardless of economic means, we continue to seek the long-term, high returns available from equity-oriented strategies. With a target payout of 4.5 percent and expected long-term inflation for higher education institutions of 3.0 percent, we aim to build a portfolio that achieves a long-term 8.0 percent return or better. In order to accomplish this, we accept that we will need to lock up capital for returns in excess of those available in the public markets. Our portfolio today reflects this approach, with illiquid assets reaching roughly 40 percent of the overall Managed Pool.

Year End Letter 2019, Wesleyan University

In investing, as in life, it takes work to build and manage a relationship.

The Investments staff spends months and sometimes years building relationships with potential investment partners in order to understand exactly what makes these managers special. Both quantitative and qualitative analyses contribute to our process. In particular, in-person meetings and reference calls provide an important step in understanding the people we are investing behind.

Manager relationships should start with as much conviction in our partners’ integrity, investment judgment, and strategic differentiation as possible. Referencing is a serious endeavor enabling us to seek candid feedback from friends, former employees and colleagues, competitors, service providers, portfolio companies, and others who offer insightful perspectives. Our work helps not only to validate our investment thesis and confidence in the people we are investing with, but also gives our managers assurance in us as a long-term, supportive capital partner. Partnerships are inevitably tested by periods of underperformance, mistakes, or both, and our initial deep work gives us staying power and the ability to support our investment partners through difficult times.

Our work does not stop when a manager is added to the portfolio. Consistent monitoring is critical, and our team spends significant time traveling to visit with our partners, engaging in regular calls, executing analyses of portfolios and doing primary research. We want to understand the leadership qualities of our partners, the depth of their organizations, their adherence to stated strategy and whether their performance is in line with expectations over a long period of time. With the very long feedback loop in investing, qualitative factors play an important role in our evaluation, requiring ongoing engagement with managers on a consistent and regular basis.

The investment office is ten years old but they are ready for difficult times ahead.

Like many in the investing world, we worry about global and political risks and how they will affect the portfolio. However, we also feel extremely lucky to invest with a long-term horizon, something we view as a competitive advantage, particularly as markets become more volatile. Dislocated markets offer interesting buying and selling opportunities for investors who maintain a long-term time horizon and patience. Our strategy remains to build strong partnerships with managers who embrace deep, bottom up, fundamental research that can lead to differentiated insights and conviction. While our partners vary in their strategies, experience, and focus areas, they share certain characteristics: passion, integrity, an ownership mentality, and astute investment judgment.

As we launch into our tenth year in the Wesleyan Investment Office, we know there will be difficult investment periods ahead. We cannot know when they will arrive, but we can remain focused on a disciplined, long-term strategy and attentively manage risk and liquidity. We continue to work hard on our goal of delivering the financial returns needed for the work that makes Wesleyan such a special institution.

Snowfall on College Row at Wesleyan.
Twitter @wesleyan_u

Post by Marcelino Pantoja