Institutional Investor's Alpha Magazine - October 2007 - (Page 18)

Pension Corner Strategies Applied Knowledge As Lawrence Kochard increases Georgetown University’s exposure to hedge funds, he’s tapping the school’s business students to help him. By Christopher O’Leary S tudents at Georgetown University’s McDonough School of Business enrolled in “Investment Management for Endowments and Pensions” are getting more than just abstract theory. Their professor, Lawrence Kochard, also happens to be the university’s CIO, and taking his class means actually helping to manage Georgetown’s $1.1 billion endowment. “You can’t just passively put money into a fund of hedge funds and expect to do as well as Yale,” says Georgetown University CIO Lawrence Kochard. Teaching is more than a hobby for the 51-year-old Kochard. He views the classroom as a key part of his investment process: It provides a forum to discuss his ideas on asset allocation, portfolio construction and manager selection, as well as a pool of talent to help implement them. For students, working on Georgetown’s endowment means learning the intricacies of hedge funds, which now 18 • INSTITUTIONAL INVESTOR’S ALPHA • OCTOBER 2007 make up 20 percent of the university’s portfolio and have been a major contributor to its success. Georgetown’s endowment posted a 23.4 percent return for its 2007 ﬁscal year ended June 30 and boasts an annualized three-year return of 15.62 percent. Comparatively, the annualized three-year return for U.S. foundations and endowments is 12.80 percent for the same period, according to Santa Monica, California–based Wilshire Associates’ Trust Universe Comparison Service. Georgetown, located in Washington, D.C., had only minor hedge fund exposure when Kochard took over in 2004 as its ﬁrst CIO — a 4 percent allocation to two funds of hedge funds. After spending his first six months establishing new investment guidelines with Georgetown’s investment committee and educating its members about hedge funds, Kochard began adding larger, single-manager funds. “Instead of coming in and hiring a manager on day one, I wanted everyone to be comfortable with the changes we were going to make,” says Kochard. “Otherwise, if you have a market hiccup, some people might worry that you aren’t investing the right way and could pull the plug at the wrong time.” Georgetown’s portfolio now has allocations to two funds of hedge funds and direct investments with nine hedge fund managers, all of which have less than $1 billion under management, are sectorfocused and primarily long-short equity or distressed debt and equity. Though the university’s investment committee has ﬁnal say over allocations and manager approval, Kochard and his staff handle the interviewing and selection of managers, often turning to their funds of hedge funds for informal advice. He has three full-time investment managers — two of whom are former students — three staff members to handle operations and support functions, and eight student interns. “We do pretty deep due diligence, and when we do make an investment, we tend to get to know the managers very well,” says Kochard, who avoids funds with substantial leverage. “By not using leverage, we’re hoping that we’ll reduce some of the risks associated with hedge funds.” His approach seems to be working. In August, when Photo by David Deal for Alpha

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - October 2007

Institutional Investor's Alpha Magazine - October 2007 Contents Letter from the Editor Longs & Shorts Pension Corner: Applied Knowledge The Good Guys: Autism Advocate Interview: Nerves of Steel Cover Story: Ivy League Education Alpha Awards: Top Service Providers: Trying Times Strategies: Passage to India Profile: The Oracle of Irvine Alpha Bytes: Futurama Research Center: Funds of Funds 50 Unhedged: Commentary: Crisis? What Crisis?

Institutional Investor's Alpha Magazine - October 2007

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