Institutional Investor's Alpha Magazine - October 2007 - (Page 30)

Dartmouth College Cover Story By Frances Denmark Education As the ﬁrst CIO of Dartmouth College, former University of California treasurer David Russ is learning to deal with the unique pressures of managing the endowment of a small school with big ambitions. Ivy League D artmouth College CIO David Russ has always had a fascination with numbers. Ask him about growing up in Marin County, California, and he will tell you about the 308 steps down to the lighthouse at Point Reyes National Seashore park, where he used to bike as a teenager, or the ten Nike missiles that would rise out of the ground at a 10:00 a.m. drill every morning at the U.S. Air Force base next to his school. Later, while Russ was living in Austin, where he helped manage the endowment for the University of Texas, he built the first of his three telescopes — the largest of which has a 20-inch primary mirror and stands about eight feet high, enabling him to see galaxies billions of light-years away. Numbers bring the world into focus for Russ, 54. When he arrived in Hanover, New Hampshire, in August 2005 to manage Dartmouth’s then–$2.7 billion endowment, he immediately began digging into them. Although the portfolio had performed well in the previous three years — its annualized return of 11.5 percent was a full two percentage points above that of the Standard & Poor’s 500 index — Russ found the Ivy League school was taking on too much risk for that level of return. After running thousands of scenario analyses on the portfolio using a proprietary asset allocation model he had developed, Russ realized he needed to make some major changes: shifting assets from U.S. equities into international equities and emerging markets; re- ducing U.S. bonds; and adding Treasury inﬂation-protected securities, commodities and other real assets, while maintaining the endowment’s already sizable allocation to hedge funds and private equity. Russ presented his new plan to his bosses on the Dartmouth Investment Committee on March 2, 2006, in New York City. In advance of the meeting, he sent the eight members of the committee, who are selected by the board of trustees, a 32-page white paper detailing the asset allocation process, as well as 200 pages of analysis of the portfolio. Still, Russ was nervous that day entering the large glass-and-wood-paneled boardroom at First Republic Bank, where investment committee chair Pamela Joyner, class of 1979, was hosting the meeting. He knew he would have to win over financial heavyweights like John Brennan, chairman of mutual fund giant Vanguard Group; private equity pioneer and founder of Apollo Management, Leon Black; and Charles (Ed) Haldeman Jr., CEO of Putnam Investments. Russ explained to the committee how the new asset allocation would enable the endowment to produce higher returns with only slightly higher risk, improving its all-important Sharpe ratio (a measure of risk-adjusted returns developed by Nobel Prize–winning economist William Sharpe). As he took them through his findings asset class by asset class, they fired back questions: What was the basis of his conclusions? Why didn’t he consider 30 • INSTITUTIONAL INVESTOR’S ALPHA • OCTOBER 2007

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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