A prominent liberal arts college hired a “name brand” consultant five years ago to assist the investment committee in the endowment management process. Over time, there were several relationship manager changes and it seemed as though less experienced professionals were being assigned to work with the college. In the early stages of the relationship, a representative of the consultant attended quarterly investment committee meetings in person. Five years later, they were participating by conference call. The committee felt their consultant had lost touch with their objectives and began to seek out a more proactive relationship. They didn’t feel “connected” with their investment managers and were concerned about fulfilling their fiduciary responsibilities. Massey Quick was invited to submit an RFP and was hired after a series of meetings with the Board and the Committee.
- The committee wanted more frequent dialogue with their consultant.
- The committee and finance staff felt compelled to be closer to their under- lying managers, fulfilling their fiduciary responsibilities under UPMIFA.
- The institution’s auditors were requesting more comprehensive information regarding the alternative investments in the portfolio.
Massey Quick suggested a full day offsite meeting with the committee and staff members to map out roles and responsibilities, review the investment policy statement, establish a chain of communication, define performance reporting protocols and set a timeline for manager due diligence.The meeting concluded with a series of action items as follows:
- The investment policy statement represents an important governance document. Massey Quick Simon conducted a full review of the IPS. Suggested revisions included a more granular definition of asset classes and ranges, a statement acknowledging UPMIFA, a definition of the roles and responsibilities of the board of trustees, the investment committee, the finance staff, the consultant and the underlying investment managers, the establishment of both relative return and absolute return benchmarks, and trigger points for rebalancing the portfolio. The redlined IPS was distributed to the committee for comments. It was slightly revised and subsequently approved by the board of trustees.
- Massey Quick Simon conducted comprehensive due diligence on the current managers in the endowment portfolio. The process involved quantitative modeling of each manager, examining the risk and return characteristics of their performance net of fees. The MQS manager research team then met with each manager to conduct qualitative due diligence with Case Study: Lack of Attention Page 2 of 2the goal of understanding their investment process, the repeatability of that process, staffing, operational flows and business continuity plans. We then modeled the historical returns of the portfolio examining various risk metrics and cross correlation between the underlying managers. A comprehensive written report was presented to the committee with specific recommendations.
- A proposed portfolio was presented to reduce three key portfolio construction risks:correlation risk, drawdown risk and volatility risk. Many of the incumbent managers were retained and new managers were added after being vetted by the committee.
- Massey Quick Simon customized a monthly performance report, benchmarking the endowment against policy guidelines. The report included a performance dashboard that allowed the committee members and the board to examine the performance of the portfolio and each manager at a glance. Behind the dashboard, more comprehensive information was included on each manager, examining their performance versus their benchmark.
- A client service team was assigned to the client consisting of two partners and one director. Massey Quick Simon conducted an internal briefing session to get all of the firm’s professionals familiar with the client and their needs.
- While the committee had regularly scheduled quarterly meetings, brief monthly conference calls were set up to update the committee on performance and any ongoing due diligence observations on their underlying managers.
- The MQS team worked with the Chief Financial Officer of the college and their accountants to understand their specific requirements for the annual audit process. We organized the necessary information and provided an electronic copy of all required documents including meeting minutes, statements, audited financials, valuation policies, offering documents, due diligence notes and quantitative profiles for the managers and the portfolio.
- By helping to create a more disciplined process, Massey Quick Simon brought comfort to the board and the committee by bringing them closer to the investment process and helping them protect their fiduciary interests as well as the long term viability of the endowment.