A Proven Investment Strategy

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. We believe in collaborating with you to create the investment solution that best meets your specific needs.

investment-strategy

Outsourced CIO Services

As a leader in outsourced CIO (OCIO) services specifically for nonprofit organizations, Commonfund OCIO 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. 
2023-PI-OCIO-RankingsRead more about survey rankings and awards.

 

Our OCIO Services

Private Equity Solutions

CF Private Equity 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. Programs include:

Buyouts & growth equity | Venture capital | Real assets and sustainability | Co-investments | Secondaries

Our Private Equity Solutions

Our investment solutions are designed to enhance your financial resources while taking into account the potential effects of environmental, social, and governance (ESG) factors.

Learn more about responsible investing in your portfolio

Our Investment Philosophy

Equity Bias


Growth assets, Active and passive, Inflation hedge, Fee efficiency

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. 

Diversification


Manager decomposition, Economic factors, Risk premia, Alpha identification and diversification, Bottom-up risk construction

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.

Liquidity Premium


Measurable, Access is critical, Discipline of fund size and sector focus, Capital efficiency

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.

investment-strategy

Model Long-Term Portfolio

Income and Diversification

Fixed Income

Opportunistic
Diversified alpha
More concentrated

Core Bonds

U.S. focused
Low tracking error

Alpha Strategies

Low beta hedge strategies

Liquidity Premium

Private Strategies

Private equity
Private real estate
Private credit

Long-Term Growth

Equity

U.S.
Low tracking error
High information ratio
Highly diversified
Active/Passive

Non-U.S.

International and emerging markets
High tracking error
More concentrated
Active/Passive

Factor Strategies

Systematic
Diversified

Income and Diversification

Fixed Income

Opportunistic
Diversified alpha
More concentrated

Core Bonds

U.S. focused
Low tracking error

Alpha Strategies

Low beta hedge strategies

Liquidity Premium

Private Strategies

Private equity
Private real estate
Private credit

Long-Term Growth

Equity

U.S.
Low tracking error
High information ratio
Highly diversified
Active/Passive

Non-U.S.

International and emerging markets
High tracking error
More concentrated
Active/Passive

Factor Strategies

Systematic
Diversified

How We Seek to Add Investing Value

Strategic Asset Allocation

Portfolio Construction and Manager Selection

Tactical Asset Allocation

  • Model unconstrained portfolio
  • Incorporate client-driven constraints
  • Simulate model portfolio outcomes

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 with a focus on broader organizational considerations and pressures. We believe this leads to a more comprehensive approach to endowment management than more traditional mean variance optimization models that are more limiting for institutions with long-term investment horizons.

  • Source alpha
  • Diversify beyond beta
  • Align interests with investors (managing fees and expenses)

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.

  • Monitor and assess 7 key tactical indicators
  • Evaluate client portfolios
  • Rebalance quarterly

Commonfund uses tactical asset allocation selectively when our investment conviction is high and supported by data. Decisions are subject to the following guidelines: 

  • Strategic allocation takes precedence - tactical is used selectively.
  • Manager selection and allocation are not driven by tactical views. 
  • Tactical decisions are based on 6-18-month views and are not short-term trades. 
  • We measure and control our risk from tactical decisions to ensure they do not override any potential manager alpha. 

Get More Investment Management Insight

Principles of Investment Stewardship

Uncover the key issues and essential principles to consider when making decisions about your investment, in regard to your portfolio, process, purpose, and more.

Principles of Investment Stewardship

Interested in Commonfund?

Get in touch with us

Telephone / General Inquiries: (888) 823-6246

Client Account Assistance: (888) 823-3863

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Media Inquiries:  Emily Roy at Prosek Partners  (646) 818-9232 or email our media partner.

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