Alumni Bulletin - Winter 2009 - (Page 6)

ON CAMPUS endowment strives to achieve what we call intergenerational equity. That means both preserving the purchasing power of the endowment for future generations while also supporting the university’s current operating budget. The university’s spending policy is based on 5 percent of a moving three-year average market value. The idea of the moving average is that it helps to smooth out the contributions into the operating budget, which allows for better ﬁscal planning. The endowment spending makes up about 14 percent of the university’s operating budget. That makes the endowment the second largest contributor to the operating budget after tuition and fees. The present economic and ﬁnancial situation we’re in is pretty serious. It’s one that people haven’t seen literally since the Great Depression. It’s totally a new ball game and the best minds out there are saying this could be a signiﬁcant recession lasting a number of years. On the other hand, markets often recover before the turnaround in the economy. But we don’t know how long any of this will last. However, we do know that it will not last forever and that Lehigh’s endowment has a very long-term investment horizon. It is important to remember that as bad as markets may seem now—and they can always get worse—they eventually will get better. How has Lehigh’s approach to investments changed since you arrived in 2007? ten minutes with PETER GILBERT For decades, Lehigh University’s Endowment Fund was managed by Bethlehem Steel. But as the manufacturing giant fell on hard times in the 1970s, Lehigh’s board of trustees decided to bring the endowment in-house, setting up an investment subcommittee in October 1979 to manage it. By 2007, the endowment had grown to more than $1 billion, and had become the university’s second largest asset, behind only land and buildings. Because of the size of the endowment and the increasing variety and complexity of investment vehicles, the investment subcommittee felt it was prudent to set up an investment ofﬁce staffed with individuals possessing particular areas of expertise, which would allow the endowment to be more closely monitored. The board of trustees, acting on the investment subcommittee’s recommendation, created the position of chief investment ofﬁcer. In July 2007, Peter Gilbert was hired to ﬁll the role. Gilbert previously served as chief investment ofﬁcer at the Pennsylvania State Employees Retirement System (PA SERS) for almost 15 years, during which time he grew the fund from about $12 billion to close to $35 billion. At Lehigh, Gilbert has brought on board two seasoned investment professionals to help 6 lehigh alumni bulletin manage the university’s endowment: Jennifer Sassani, who worked with Gilbert at PA SERS, is director of alternative investments, and Mark Siddoway, who came from Utah’s state retirement system, is director of public markets. Today the investment office works in close collaboration with the investment subcommittee. In mid-December, Alumni Bulletin Editor Jack Croft talked with Gilbert about how Lehigh is navigating the turbulent ﬁnancial waters. For those who may not be familiar with endowments, let’s start by talking about Lehigh’s endowment and the role it plays … PHOTO BY DAN JOHNSON In terms of the endowment’s investment objectives, there are two goals. One is preservation of principal in real terms for perpetuity, because the university is expected to be around virtually forever. And two, the endowment’s spending policy helps to sustain the current educational initiatives of the university. In other words, the When we came to Lehigh, we conducted an asset allocation study. When we looked at the total universe of endowment funds, Lehigh’s investment returns pretty much tracked or were somewhat better than the “average” endowment fund returns. But as Lehigh approached that billion-dollar mark, we wanted to compare ourselves to the larger endowment funds. When we made that comparison, we saw that the larger funds signiﬁcantly outperformed the smaller and average-size endowments. The major drivers of the superior performance of the larger endowments are due to their professional investments staff, who developed a diversiﬁed asset allocation by accessing and investing directly with high-quality alternative investment managers. (Alternative investments include private equity, venture capital, real estate, and hedge funds.) The result of this study was to move, in a very disciplined and patient way, toward diversifying the endowment into a variety of other

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Alumni Bulletin - Winter 2009

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