Institutional Investor's Alpha Magazine - October 2007 - (Page 32)

Dartmouth College deliver it is unrelenting. Like most schools, Dartmouth relies on its endowment to cover some of its day-to-day operations — in its case, nearly a third of the $670 million budget for the fiscal year ended June 30, 2007. About 55 percent of Dartmouth’s operating budget goes to the undergraduate college, which has 4,100 full-time students. Dartmouth also has three world-class graduate schools — the Dartmouth Medical School, the Thayer School of Engineering and the Tuck School of Business — that combined have 1,600 students. According to William Jarvis, managing director at the Commonfund Institute, the research arm of the Wilton, Connecticut–based Commonfund Group, which manages $42 billion for endowments and other institutions, Dartmouth funds a much higher percentage of operations from its endowment than do most colleges and universities. Among schools with endowments greater than $500 million, the average was just 17 percent in 2005, the most recent year for which the Commonfund has data. For a small school, Dartmouth has large ambitions. Its trustees are undertaking the biggest building spree in the school’s 300-year history. The new projects — which include a life sciences complex; engineering, science and mathematics buildings; eight dormitories; two dining halls; and a broad array of athletic facilities — carry a price tag of $1.1 billion. To cover the debt service, the trustees voted this spring to increase endowment spending. Beginning in fiscal year 2008–’09, the spending ratio, which had been reduced from 5.5 percent to 5 percent of assets in 2004 after the dot-com bubble burst, will be raised to 7 percent. By contrast, the average spending ratio at U.S. colleges and universities is 4 to 6 percent, says Carolyn Pelzel, vice president for development at Dartmouth. As a candidate without any Dartmouth connections, Russ was in many ways an unlikely choice for CIO to replace director of investments Jonathon King, who left in January 2005. The trustees selected Russ because of his experience, not merely in overseeing two of the biggest U.S. endowment portfolios but also in introducing complex new asset classes, including hedge funds, in each location and turning around bottom-quartile performers. Now safely ensconced in the Dartmouth investment office on a quiet side street adjacent to campus, Russ likes to sport a Cat in the Hat tie in homage to one of the school’s most famous graduates, Theodor Geisel (better known as Dr. Seuss). Russ is considered a hands-on manager who pays scrupulous attention to detail. Within his first month, he conducted a thorough performance review of all 70 public markets managers, drawing upon the proprietary analytic tools he had developed during his years managing endowments. Following the March 2006 approval of his investment plan, he restructured the entire endowment portfolio, recalibrating allocations in nine asset classes, realigning and reorganizing portfolios as he saw fit. In the process he terminated 26 of Dartmouth’s 143 managers, including five of the 27 Photo by Tom Tavee for Alpha “Being selfeffacing and humble is a core value at Dartmouth,” says Pamela Joyner, investment committee chair and graduate of the class of 1979. certain securities? Where did he get his numbers? “It’s the toughest and most sophisticated group I have ever worked with,” says Russ. After nearly three hours, the board voted to approve the plan. Satisﬁed but drained, Russ walked uptown to the Ritz-Carlton hotel, where he was staying, and promptly fell asleep. The next thing he knew, it was 3:30 p.m. “I hadn’t taken a nap in 15 years,” says Russ, who nearly missed his next meeting. “I was exhausted.” When Dartmouth College came calling in January 2005 looking to hire its ﬁrst CIO, the job seemed to Russ like the perfect opportunity to escape the public scrutiny he faced in his position at the time as treasurer of the regents for the University of California, his alma mater. In his four years at UC, where he oversaw a $63 billion pool of pension and endowment assets, Russ was forced to walk the gauntlet of angry unions and special-interest groups. He had to lobby for legislation in Sacramento to protect the university’s private equity and hedge fund investments. But at Dartmouth, Russ has learned that there is no escaping the pressure that comes with managing an endowment, regardless of its size. The competition for students, professors and alumni dollars among U.S. colleges and universities is ﬁerce — and increasing every year. For those charged with shepherding an endowment, all that matters is investment performance, and the pressure to 32 • 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

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.