C&B Notes

Schooling the Rest

The endowment for Quinnipiac University (yes, the one that does polling) has achieved top tier results without following the endowment model. The school’s leadership has invested primarily in public equities and has been committed to this strategy over the long haul.

The private university tucked away in the Connecticut hills delivered annualized gains of 6.1% for the decade ended June 30, 2017.  The returns are in the top 10% of U.S. schools ranked by the National Association of College and University Business Officers and Commonfund.  John Lahey and Mark Varholak, the two university administrators overseeing the roughly $530 million endowment, say the school has steered clear of the crush of investors into index funds and big private-equity bets.  Instead, it achieved its stellar returns by investing 70% of its money with stock pickers and sticking with them…

“We know equities,” said Mr. Lahey, the university’s 71-year-old president, who plans to teach philosophy after he retires in June following more than three decades at the helm.  In contrast to more complex investments, in stocks “there’s more transparency,” he said.  The approach Mr. Lahey champions muddies the playbook for U.S. colleges seeking to grow their wealth and have more money to spend on attracting students.  Many investors have abandoned stock pickers as the U.S. stock market shrinks and money surges into low-cost indexes.  The average actively managed fund focused on U.S. stocks lagged behind the S&P 500 in the decade ended June 30, according to Morningstar data.  Quinnipiac, in contrast, has no money in index funds and stayed with stock pickers for the long haul.

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The university never felt the pressure to copy the model pioneered by Yale investment chief David Swensen that pushed many college endowments to invest heavily in alternative and illiquid strategies such as private equity and venture capital.  The school, recognizing it doesn’t have the same access to top buyout and venture managers as larger colleges, earmarks just 20% of assets split between hedge funds and private investments.  “They are aware of what other Ivies are doing and don’t let others affect their thinking,” said Peter Dunne, a managing director at a Bank of America Merrill Lynch institutional consulting group advising Quinnipiac.

The university takes comfort that about 80% of its assets can be converted to cash in 30 days.  “Even with a long-term value tilt, the equity managers have created a highly liquid endowment,” said Mr. Varholak, Quinnipiac’s chief financial officer.

 

 

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