Institutional Investor's Alpha Magazine - October 2007 - (Page 36)

Dartmouth College lature to revise the school’s charter to turn it into a public institution. When it comes to investing, Dartmouth was one of the first schools in the U.S. to embrace venture capital and private equity. “One of the reasons we’ve done so well is because our alumni are so anxious to help Dartmouth that they’ve let us into funds that other people couldn’t get into,” says chairman Haldeman, class of 1970, who joined the board three years ago and also sits on the investment committee. Dartmouth made its initial private equity allocation in 1978 under CFO and treasurer Paul Paganucci. Among the early funds were those offered by Greylock Capital Management, Sequoia Capital, TA Associates, Warburg Pincus and Russ Carson’s Welsh Carson. The private equity investments were the jewel in the endowment crown when Lyn Hutton arrived in 1990 to serve as vice president of ﬁnance and administration. At that time, the job still encompassed the responsibilities of both treasurer and director of in— CHARLES HALDEMAN JR., vestments at the then–$600 milCHAIRMAN, BOARD OF TRUSTEES lion fund. Almost immediately, Hutton decided to start a hedge fund portfolio. “When we looked at what managers were doing in the long-short and absolute-return space, it was no longer logical to exclude them from the portfolio,” recalls Hutton, who left Dartmouth at the end of 1998 to become CFO of the John D. and Catherine T. MacArthur Foundation. (In December 2002 she left MacArthur to become CIO of the Commonfund.) Several of the early hedge fund investments have made it into the Russ portfolio, including Farallon and Lone Pine Capital, which has been the college’s best-performing hedge fund. Its founder, Stephen Mandel Jr., Dartmouth class of 1978, joined the board of trustees and the investment committee last year. Lone Pine is one of a half dozen of the endowment’s investments in funds managed by Dartmouth alumni. Dartmouth has also been a longtime investor in the private equity funds of Apollo Management, headed by Leon Black, class of 1973. Now dubbed “marketable alternative equity” at Dartmouth, the hedge fund portfolio represents 21 percent of the total, with $760 million in assets. Since Hutton’s time it has grown larger than the private equity and venture capital portfolio, which is just under 16 percent of the total, with $585 million in assets. For the ten years ended June 30, 2007, hedge funds provided a 12.15 percent average annual return; private equity and venture capital returned 24.44 percent. When King took the reins from Hutton in 1998, about 15 percent of the fund was in venture capital, 10 percent in private equity and 5 percent in hedge funds. King brought on David Marcus and Daniel Lynch to ratchet up the hedge fund portfolio. Marcus and Lynch now work for Russ. Marcus, who has a BA in ﬁnance from the Wharton School at the University of Pennsylvania and an MBA from the University of Chicago, continues to oversee the hedge fund and LBO investments. Lynch, who has a BA and an MA in economics from Boston University, as well as a second master’s in liberal studies from Dartmouth, manages the venture capital and natural resources portfolios. The new CIO has required some getting used to. King had a relaxed management style; Russ is intense. Marcus says Russ is also a more hands-on investment chief than was his predecessor. In the past King met with few of the managers Marcus and Lynch selected before they were hired, but Russ meets with most of them, at the very least by conference call. “I told them I’m responsible for the portfolio, and I’m going to participate in all the decisions,” explains Russ. “I’d imagine the staff has had to change gears,” adds Fahey. The investment committee has had to switch gears too. King provided a few pages summarizing the endowment’s quarterly and long-term performance; the new CIO has turned the quarterly committee meetings into something of an extreme sport. “We tease him about the thickness of the book,” says Joyner. “We’ll say, ‘Thank you for paring it down to 140 pages.’” Russ’s asset allocation changes affected every corner of the Dartmouth portfolio. When he first presented it at the March 2006 meeting, he says, “I didn’t know which way it was going to go because I hadn’t gone out and presold what I was thinking.” Before the meeting he had asked the committee to send him their expectations for future returns in each asset class. Having received the green light to restructure the endowment portfolio, Russ moved quickly. He reduced the bond and U.S. equity portfolios and increased — and reorganized — the international and emerging-markets investments. Associate investment officer Ellen Brownell, whose husband teaches physics at Dartmouth, oversees all of these portfolios, now 50 percent of the total. Commodities and real estate were placed in separate portfolios. In September Russ hired a fourth investment professional — Megan Hammond, a 1990 Dartmouth grad with an MBA from Yale and eight years as a consultant at Cambridge Associates — to manage the real estate investment portfolio. Russ whittled the number of hedge funds down to 23 from 27 while keeping the allocation at 21 percent to reflect his belief that a more concentrated portfolio yields better returns. In addition to Farallon and Lone Pine, Dartmouth invests with Blackstone Distressed Securities Advisors, Convexity Capital, Maverick and Och-Ziff Capital Management. In all, Russ has ended investment relationships with 26 managers and started new ones with 28, across the entire portfolio, not including “re-ups” with existing private general partners. “There’s no blueprint for how to manage the portfolio,” says Russ of the changes. “Dartmouth alumni have let us into funds that other people couldn’t get into.” 36 • 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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