The Four P’s of Investment Decisions: Lessons from the Commonfund Institute

July 12, 2018 |
3 minute read

Three days after becoming Executive Director of the Commonfund Institute, I found myself at Yale University in New Haven giving welcoming remarks at our annual educational program.  Although I will now oversee the program going forward, like the trustees, investment teams, and staff members in attendance, I went to learn.  And having spent the last ten years specializing in the endowment model as a writer, speaker, educator and investment committee member, I still learned a great deal.

Each day focused on the key responsibilities and decisions investment overseers must make, starting with policy decisions and leading into execution. Following are the most important lessons I learned, organized into a framework that may guide institutional investors in their role as fiduciaries. The Four P’s of Investment Decisions.


We kicked off the Institute with conversations on policy. Asset allocation is often described as the most important decision investment committees can make, but the spending policy decision impacts the entire institution. I took away these new ideas for approaching these decisions

  1. Avoid the “Deficient Frontier” in Asset Allocation Decisions: Commonfund’s Deborah Spalding, Deputy CIO and John Delano, Head of Research and Analytics, presented research showing that although certain portfolios along the Efficient Frontier[1] may have the same risk and return profile, extensive quantitative analysis indicates that some of those portfolios may actually be deficient. Traditional asset allocation analysis has not accounted for the likelihood of extended drawdown periods. Optimizing asset allocation to reduce the length of time from drawdown to recovery can move institutions off what I’m calling “the Deficient Frontier”, because it allows for more consistent spending and improved likelihood of maintaining intergenerational equity into the future.

  2. Avoid the Spending Policy Iceberg: Most institutions follow a spending model that’s based on a rolling average of endowment performance. But, as Tim Yates, Managing Director at Commonfund and Verne Sedlacek, AGB board member and former Commonfund CEO, explained, the investment portfolio is just the tip of the iceberg. Look at what lies beneath to establish your spending policy. Understand your institution’s underlying ecosystem – the operating and fund-raising environment – and analyze your unique operating metrics such as investment costs. By doing so, institutions can decouple spending policy from investment returns and achieve more consistent spending.


Day two focused on Governance, where people and policy intersect. Because human behavior, emotions and relationships strongly influence our ability to make decisions, one of the most important tools institutional overseers can have in place is an Investment Policy Statement. Our speakers shared these thoughts:

  1. Make your IPS your Sword and Shield: Steve Snyder, Managing Director, and Brian Cohen, Director, from Commonfund described the Investment Policy Statement as both a sword and a shield. Ideally committees prepare the statement during times of calm so they can rely on it during times of crisis. It’s your sword for establishing investment parameters and carving out decision-making guidelines. It’s your shield for guarding you from making panicky decisions in times of trouble.
  2. Make this your Governance Motto: The best advice for constructing your IPS, overseeing the institution, and leading your committee came from Commonfund’s former board chair, Myra Drucker. The best governance structure is “The right people making the right decisions on the right issues.”


On the third day, we shifted from policy decisions to execution decisions, studying overall portfolio construction techniques and specific asset classes. Here are my takeaways:

  1. Apply Portfolio Construction Principles: Commonfund’s CEO, Mark Anson, taught us four principles for making portfolio construction decisions:
    1. Source alpha

    2. Diversity beyond beta

    3. Manage risks actively

    4. Align your interests with your asset managers

  2. Apply Analytics and Pattern Recognition Skills: Building sub-portfolios –whether in equity, fixed income or private capital – requires deep analytics capability, access to quality managers, strong pattern recognition skills and specialized expertise.
  3. Apply Willingness when you have the Ability: Many institutions have the ability to handle more illiquidity in their portfolios, but may not have the willingness. For institutions that can handle the illiquidity, becoming more willing may benefit the organization in the long run as it provides the opportunity to capture a premium above public equity markets.


With so many decisions to make, it’s tempting to avoid new information and ideas. In thinking back on the Institute, the most important lesson I learned is that investment fiduciaries need to make it a policy to broaden their perspective in order to incorporate new developments into their policies and portfolios more readily. At the Institute, experts gave us fresh perspectives on important issues:

  1. Broaden your Perspective on ESG: Commonfund board members, Bob Litterman and Doug Breeden, both leading risk management experts with many years of investment experience, consider climate change a serious risk management issue. Litterman urged investors to commit to the U.N.-sponsored Principles of Responsible Investment.
  2. Broaden Your Perspective on Diversity: Although institutional investors have led the movement for more diverse corporate boards, panelists said non-profit organizations have lagged in bringing diversity to their own boards. Yet the same imperatives for diverse boards and workplaces – better innovation, talent and performance – apply. Accomplish diversity by searching outside your existing networks or hire experts to identify candidates. Our panelists disagreed with standard excuses. As one of them told us, “There still aren’t enough diverse candidates, but there are plenty.”

This Four P’s of Investment Decisions framework helped me absorb the lessons from the Institute and can serve as a guide for fiduciaries overseeing long-term investment funds. My week at the Institute broadened my perspective and reminded me of the value of continuous learning. I will use the Four P’s to develop plans and ideas for future programs. To apply for future programs, click here. I hope you will join us.

[1] The efficient frontier is the set of optimal portfolios that offers the highest expected return for a defined level of risk or the lowest risk for a given level of expected return. Portfolios that lie below the efficient frontier are sub-optimal because they do not provide enough return for the level of risk. Source: Investopedia.

Commonfund Institute


Commonfund Institute

Stay connected with the Insights Blog

Popular Blog Posts

Market Commentary | Insights Blog

Chart of the Month | The Surprising Relationship Between Money Supply and Inflation

The potential for rising inflation is becoming a top concern for many investors and consumers. Many believe that inflation is already here as evidenced by price increases in commodities, homes,...
Perspectives | Insights Blog

The Case for Using the Higher Education Price Index® (HEPI) to Define Inflation for Colleges

When calculating return targets for an endowment portfolio, a conventional piece of the equation is often the Consumer Price Index (CPI). CPI plus 5% is the common short-hand formula for institutions...
Governance And Policy | Insights Blog

Endowment Management and the Three Primary Responsibilities of a Board

The fourth blog in the “Six Ps of Investment Stewardship” series addresses People, specifically how boards function within an organization. To learn more about the first four principles in the series...


Certain information contained herein has been obtained from or is based on third-party sources and, although believed to be reliable, has not been independently verified. Such information is as of the date indicated, if indicated, may not be complete, is subject to change and has not necessarily been updated. No representation or warranty, express or implied, is or will be given by The Common Fund for Nonprofit Organizations, any of its affiliates or any of its or their affiliates, trustees, directors, officers, employees or advisers (collectively referred to herein as “Commonfund”) or any other person as to the accuracy or completeness of the information in any third-party materials. Accordingly, Commonfund shall not be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any statement in, or omission from, such third-party materials, and any such liability is expressly disclaimed.

All rights to the trademarks, copyrights, logos and other intellectual property listed herein belong to their respective owners and the use of such logos hereof does not imply an affiliation with, or endorsement by, the owners of such trademarks, copyrights, logos and other intellectual property.

To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated herein. Forecasts of experts inevitably differ. Views attributed to third-parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Market and investment views of third-parties presented herein do not necessarily reflect the views of Commonfund, any manager retained by Commonfund to manage any investments for Commonfund (each, a “Manager”) or any fund managed by any Commonfund entity (each, a “Fund”). Accordingly, the views presented herein may not be relied upon as an indication of trading intent on behalf of Commonfund, any Manager or any Fund.

Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Fund. Such statements are also not intended as recommendations by any Commonfund entity or any Commonfund employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information or statements. Past performance is not indicative of future results. For more information please refer to Important Disclosures.