Our investment strategy is based on the endowment model of investing that we helped create, refine, and enhance over the past 50 years. We focus on three basic principles of an equity bias, diversification, and prudent use of illiquid investments. Risk management efforts and responsible investing methods are part of everything we do, whether we’re working with your organization for outsourced CIO services or providing private equity solutions. We believe in collaborating with you to create the investment solution that best meets your specific needs.
As a leader in outsourced CIO (OCIO) services specifically for nonprofit organizations, Commonfund Asset Management offers a range of approaches and resources based on individual client needs. With this singular focus, we’ll provide you advice and insight into every facet of managing your institution’s finances.
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Commonfund Capital invests with global partners into small- and mid-size companies in growth markets and industries focused on technology, energy, and services, as well as industries in transition. Partnering with many of the world’s leading private investment firms, we create focused, strategic-specific portfolios to match your needs. Programs include:
Global private equity | Venture capital | Real assets and sustainability | Co-investments | Secondaries
When allocating to public equities, we seek to separate the component pieces of investment returns (such as market beta) and factor exposures (like size or style) from true manager skill, or alpha. A core step in Commonfund’s manager evaluation process is isolating these components of return using a range of quantitative tools. We aim to allocate to the most skilled managers, such that the resulting blend of components provides the desired risk and return profile to the portfolio, avoiding overlapping exposures and highly correlated sources of return. This analysis generally allows us to pay active management fees only for diversified alpha generation, not for concealed market beta.
Commonfund believes that effective diversification is no longer achieved by simply allocating to different geographic regions, investment styles or market capitalizations. With more efficient markets, correlations have increased. This is why we focus on identifying returns uncorrelated to market movements as well as returns uncorrelated among managers (e.g., avoiding “crowded trades”). Our bias for allocating to hedge funds, for example, is to minimize market exposure—that is, to have little or no market beta in hedge fund strategies. In fixed income, we seek bond alternatives that generate uncorrelated returns in different market cycles without equity market beta.
It is now possible to measure and track the existence of the liquidity premium earned over periods of time. This lets you potentially take advantage of periods during which the market is willing to pay investors more for providing capital to illiquid investments. Our bias is for investors to have policy allocations to illiquid strategies to the level that is practical for your institution’s risk tolerance and appetite for liquidity.
Strategic asset allocation is the most important investment decision impacting performance and risk. Our process is to work collaboratively with each client to develop this strategic allocation. The ultimate decision on strategic asset allocation is made by the client based upon their return objectives, risk tolerances and a variety of inputs and potential constraints. We use a wide range of financial and operating metrics to help guide this decision. Further, we use extensive modeling tools to aid in decision making with a focus on optimizing portfolios to draw down risk and recovery, in contrast with more traditional mean variance optimization models that we believe are more limiting for institutions with long-term investment horizons.
Investment decisions on portfolio construction are team-based and led by our chief investment officer. Our investment committee reviews client portfolios monthly to determine and approve investment strategies, portfolios, products, and the investment managers needed to construct each portfolio. We scour the globe to find managers that we believe bring unique skills and perspectives, including diversity of race, color, ethnicity, gender, and national origin. The team also evaluates performance at the strategy, fund, manager, and client portfolio level, while also monitoring client investment restrictions, fund liquidity, and fund leverage. Manager research, due diligence, and selection is the broader responsibility of the investment team.
Commonfund uses tactical asset allocation selectively when our investment conviction is high and supported by data. Decisions are subject to the following guidelines: