Insights Blog

Returning to the “Old Normal”

Posted by Ryan Driscoll, Michael Strauss on Feb 15, 2018

Topic: Equities | Industry Knowledge | Market Commentary

Investors took solace in the lack of stock market volatility in 2017. In reality, that may have been more of an anomaly than the current turbulence equity investors are experiencing. Volatility spikes in the capital markets are not unusual.

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A Gap In Reality

Posted by Timothy T. Yates, Jr. on Feb 13, 2018

Topic: Asset Allocation | Industry Knowledge | Investment Strategy

With the release of the annual NACUBO-Commonfund Study of Endowments (NCSE) comes the obligatory comparison of 1-year returns. “How did we do relative to the 12.2 percent average return” is a question frequently asked at many committee meetings and while it is certainly important to understand what peers are doing, the most recent 1-year return may be the most overrated number in the 127 page study.

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Welcome to Commonfund

Posted by Commonfund on Feb 9, 2018

Topic: People

Commonfund is proud to introduce the new employees that joined the firm in 2017. They each come with different backgrounds and experiences that will enhance our diversity of ideas and contribute to the mission of the firm and, most importantly, to the missions of our clients.

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Volatility Returns to
the Equity Markets

Posted by Kristofer Kwait, Steve Snyder on Feb 7, 2018

Topic: Equities | Investment Strategy

During the course of the recent selloff in the equity markets and spike in volatility, many of our investors have questioned whether this significant drop experienced over a few trading days portends the beginning of a bear market, or a shorter term correction (albeit a violent one).

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Despite Strong FY2017, Endowments Report Decline in Ten-Year Return

Posted by Commonfund Institute on Jan 25, 2018

Topic: Asset Allocation | Governance and Policy | Industry Knowledge

Data gathered from 809 U.S. colleges and universities for the 2017 NACUBO-Commonfund Study of Endowments® (NCSE) show that participating institutions’ endowments returned an average of 12.2 percent (net of fees) for the 2017 fiscal year (July 1, 2016 – June 30, 2017) compared with -1.9 percent for the 2016 fiscal year and 2.4 percent for fiscal 2015. Despite this year’s improved return, the mission-critical 10-year average annual return fell to 4.6 percent from last year’s 5.0 percent, as FY2007’s strong 17.2 percent return dropped out of the trailing 10-year average.

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When Leaks Turn into Floods:
Challenges Facing Higher Education

Posted by Timothy T. Yates, Jr. on Jan 19, 2018

Topic: Governance and Policy | Industry Knowledge | Investment Strategy | Operating Assets | Risk Management

2017’s tax legislation is the latest in a growing list of challenges facing higher education. The new excise taxes on endowment earnings of the largest private universities, coupled with...

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Moving from a Gallop to a Grind

Posted by Ryan Driscoll, Michael Strauss on Jan 10, 2018

Topic: Market Commentary

The U.S. economy, in line with our long term view, has clearly moved into a stronger growth mode as the domestic economy expanded at around a three percent pace in the final nine months of 2017. The short-term stimulus from the tax cut package is likely to produce continued solid growth in 2018.

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Bonds May Not Be Loved, But They Shouldn’t Be Forgotten

Posted by Roman Moravec, James Meisner, Vincent Kravec on Jan 10, 2018

Topic: Asset Allocation | Fixed Income | Investment Strategy

Most institutional portfolios have strategic allocations to core (investment grade) fixed income, and for good reasons. Core fixed income can serve as an anchor during times when risk assets such as equities and lower grade credit are under assault.

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Tax Reform:
CPI Plus More

Posted by Sharad Samy, Keith Luke, Catherine Keating on Dec 19, 2017

Topic: Governance and Policy | Industry Knowledge

It was another taxing weekend (literally) at Commonfund as we digested 1,097 pages of the conference agreement for the tax reform bill (the Tax Act) and its implications for our country and for the nonprofit and public sector investors we serve. We focused on the Tax Act’s provisions, but also its wider goal of stimulating economic growth. We also attempted to discern the implicit preferences and philosophy of this first piece of major legislation from our nation’s 115th Congress, which is expected to be passed later this week, and its implications for public policy in the years ahead.

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2017 HEPI: Highest Increase Since 2008

Posted by Michael Strauss on Dec 12, 2017

Topic: Governance and Policy | Industry Knowledge | Operating Assets

This week Commonfund released the 2017 update to the Higher Education Price Index® (HEPI). It includes three important changes that investors should take note of: (1) the 2017 HEPI inflation rate was 3.7 percent - the highest increase since 2008, (2) seven of the eight HEPI components showed positive increases, with just Supplies and Materials registering a slight decrease of 0.5 percent as compared to the prior year and (3) fringe Benefits increased 5.9 percent, the most since before the Great Financial Crisis.

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The Tax Man Cometh (And Not Just for the Ivies)

Posted by Sharad Samy, Keith Luke, Catherine Keating on Dec 4, 2017

Topic: Governance and Policy | Industry Knowledge

As we approach the end of calendar year 2017, the passage of significant tax reform legislation – while far from certain – seems increasingly more likely. The Senate and the House versions, which vary in some substantive ways, must be reconciled before the President can sign a bill into law. What is certain is that if passed, the tax bill will have a broad impact for most filers – corporations, individuals and tax-exempt institutions, including colleges and universities, private foundations and public charities.

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Spending Policy: Is Yours Ready for the Next Downturn?

Posted by Isaiah BienAime, Timothy T. Yates, Jr. on Nov 7, 2017

Topic: Governance and Policy | Investment Strategy | Operating Assets

In most Investment Policy Statements there is often a reference to two important, but conflicting, objectives: one, to preserve the purchasing power of the long-term portfolio in real terms, and two, to provide a stable. predictable and hopefully growing source of income to the institution that the long-term portfolio supports. Why the conflict? Because in order to generate returns that will sustain real purchasing power in perpetuity, the portfolio must be exposed to risk which often means volatility and thus potential instability or unpredictability in the income stream...

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Keeping It Simple — Growth and Earnings Still Driving Equities

Posted by Ryan Driscoll, Michael Strauss on Nov 3, 2017

Topic: Market Commentary

The U.S. economy has moved into a stronger growth mode. Even with the negative impact from hurricanes, real GDP growth expanded at a 3.0 percent pace in 2017:Q3, after a 3.1 percent advance in 2017:Q2. This represented the first time since 2014 that the economy registered back-to-back quarterly gains of three percent or more.

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Emerging Market Equities Turn the Corner

Posted by Mark Bennett on Nov 1, 2017

Topic: Equities | Investment Strategy

As we progress through calendar year 2017, we have witnessed the continuation of the equity bull market started in 2009. One difference however, is that leadership has turned (finally!) to non-U.S equity markets.

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Top Ten Insights for Foundation Investors in a Mature Market

Posted by Catherine Keating on Oct 17, 2017

Topic: Governance and Policy | Industry Knowledge | Investment Strategy | Responsible Investing

Last week I had the honor of moderating a panel at the 2017 Council on Foundations Endowments & Finance Summit. In the session, “Foundation Investing in Mature Markets: Challenges and Rewards,” I was joined by three esteemed colleagues, representing foundations with over $3 billion in endowed assets and close to three centuries of combined history. My colleagues: Mary Greenebaum, CIO, New York Community Trust; Sherry P. Magill, PhD., President of the Jessie Ball duPont Fund; and Jeremy Tennenbaum, CFA, Chief Financial Officer of the Altman Foundation. Each of these institutions is a pillar of its community, supporting programs that enrich quality of life and . . .

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Join Us – Donate to Hurricane Relief Today

Posted by Commonfund on Oct 4, 2017

Topic: Partners | People | Responsible Investing

As we all know, hurricanes Harvey, Irma and Maria have brought terrible devastation to Texas, Florida and the Caribbean – but also brought out the best . . .

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A Different Engine for European Equities

Posted by Ryan Driscoll, Michael Strauss on Sep 18, 2017

Topic: Equities | Market Commentary

The Euro area economy seems to be on solid footing and the European Central Bank (ECB) has taken notice. European companies are finally showing meaningful improvements in corporate earnings, although the strengthening Euro could put pressure on some entities. One new twist - European officials are beginning to recognize that the stronger Euro may present a challenge to the economic and earnings ...

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Navigating the Hurricane Season

Posted by Ryan Driscoll, Michael Strauss on Sep 15, 2017

Topic: Market Commentary

Over the near-term, the one-two punch from Hurricanes Harvey and Irma will weaken many of the economic statistics that will be released . . .

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On Complacency | Why Risk Management Always Matters

Posted by Dana Moreau, Brian Rondeau on Sep 14, 2017

Topic: Governance and Policy | Industry Knowledge | Investment Strategy | Risk Management

Like nearly everything in the financial markets, risk is cyclical. History repeats itself. The echoes of past crises are always heard in present ones, yet new crises are rarely predicted and not always properly planned for. We are in the midst of one of the longest economic expansions in U.S. history, 98 months and counting, trailing only the 120 month and 106 month expansions of the 1990s and 1960s, respectively. There have been bumps along the way, but this has been an extended benign period for risk in the capital markets.

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A Primer on Outsourced Investment Management

Posted by Commonfund Institute on Aug 31, 2017

Topic: Industry Knowledge | Investment Strategy | Outsourced Investing

Once seen primarily as a solution for small institutions with limited resources, outsourced investment management is now widespread, with a broad range of long-term investors – including those with more substantial investable asset pools – turning to the outsourced chief investment officer model. Properly implemented, outsourcing can help institutions to address portfolio complexity and risk management challenges, speed decision-making and contend with an increasingly rigorous regulatory environment, while enabling trustees to focus on improving institutional governance.

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2016 CCSF Key Findings [Infographic]

Posted by Commonfund Institute on Aug 14, 2017

Topic: Asset Allocation | Governance and Policy | Industry Knowledge

For the fiscal year ended December 30, 2016, participating private foundations reported an average return of 6.4 percent while participating community foundations reported an average return of 7.3 percent for the same period. In this infographic, we report the top findings from the 2016 Council on Foundations-Commonfund Study of Foundations. This annual report studies, on average, over 200 private and community foundations that represent over $100 billion in assets.

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Preparing for the Fall Season?

Posted by Ryan Driscoll, Michael Strauss on Aug 4, 2017

Topic: Market Commentary

For the last several months, the turnaround in corporate earnings has provided support and stability to the stock market. If this strength is maintained, it would be the first time since 2011 that the S&P 500 Index posts double-digit yearly gains in earnings for two consecutive quarters. Although the prospects for near term earnings growth are positive, support for improved profit margins is decelerating.

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How Much Beta is in Your Equity Portfolio?

Posted by David Scarozza on Jul 18, 2017

Topic: Asset Allocation | Equities | Investment Strategy | Risk Management

It’s undeniable that every active equity manager’s chief competitor these days is the passive alternative against which its investors measure their performance. This is as true for a singularly focused equity mandate manager as it is for an organization like Commonfund, who assembles multi-manager active risk equity portfolios that seek to exploit the potential advantage of scouring the globe in pursuit of strategies that offer both the possibility for excess returns and excess return source diversification.

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Avoid the Home Run Derby

Posted by Ryan Driscoll, Michael Strauss on Jul 12, 2017

Topic: Investment Strategy | Market Commentary

We do not look for a repeat of the “home run” 18 to 20+ percentage point relative outperformance from stocks versus bonds (which was registered in three of the last five fiscal years) in the upcoming fiscal year. And, unlike Aaron Judge at MLBs Home-Run Derby, investors should aim for singles and doubles going forward as we expect a lower return environment.

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Making the Case for Natural Resources Investing

Posted by Ethan Levine, Paul Von Steenburg on Jul 11, 2017

Topic: Asset Allocation | Investment Strategy | Private Capital

The natural resources sector is often characterized as cyclical, as producers and service providers experience underlying exposure to and commensurate volatility of commodities in the oil and gas, mining and agriculture sectors. After a couple of years of challenging sector returns, some institutional investors are questioning what the role of natural resources should be in a portfolio and if now is a good time to invest in the asset class.

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Thoughts on the Role of Credit in Institutional Portfolios

Posted by James Meisner, Vincent Kravec on Jun 14, 2017

Topic: Asset Allocation | Fixed Income

While most institutional portfolios have allocations to investment grade corporate credit, as a strategic allocation high yield and emerging market credit (liquid credit) are sometimes overlooked. Yet these sectors can deliver attractive performance relative to other asset classes over long time periods with the potential for strong cash flow and diversification benefits as well.

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WannaCry? WannaRun, WannaHide!
Managing Cybersecurity Risk

Posted by David Young, Brian Rondeau on Jun 7, 2017

Topic: Industry Knowledge | Risk Management

Over the last year there has been no shortage of things to keep investors, asset managers, and risk managers concerned. Despite these exogenous shocks most equity markets have continued to shake off these events with measures of volatility remaining muted. There are always additional risks lurking and the WannaCry ransomware attack highlighted one of the largest.

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Flexing your Global Portfolio can lead to ACWI Fatigue

Posted by Mark J.P. Anson on Jun 6, 2017

Topic: Asset Allocation | Industry Knowledge | Investment Strategy

Like the build-up of lactic acid in your muscles after a strenuous workout, the underperformance of Morgan Stanley Capital International All Country World index (ACWI) vs. the Standard & Poor’s 500 (S&P 500) – or any U.S. equity benchmark, for that matter – for the last several years has been building up to a painful point. This pain threshold has pushed investors to the limits of their global endurance resulting in what we call “ACWI Fatigue.” ACWI Fatigue is most acute with institutional investors who use the MSCI ACWI as their equity benchmark and, as a result, have a globally-oriented equity portfolio.

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Active Fee Management: Notes from the Front Lines

Posted by Mark Bennett on May 30, 2017

Topic: Industry Knowledge | Investment Strategy

Few topics get investor’s attention as much as fees. We wouldn’t be human if we all didn’t want to know, in detail, how much something costs. In the world of investing, fees are an even more important topic, as they directly relate to your investment performance...

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The Fed Still on “Autopilot”

Posted by Ryan Driscoll, Michael Strauss on May 26, 2017

Topic: Industry Knowledge | Investment Strategy | Market Commentary

The latest FOMC minutes show that the Fed believes that the growth and inflation slowdown in 2017:Q1 will prove to be transitory...

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Fiscal Follies Negated by Earnings

Posted by Ryan Driscoll, Michael Strauss on May 2, 2017

Topic: Market Commentary

A president’s first 100 days in office is often viewed as a barometer for success of a new administration. Despite Trump’s touting that his fiscal policy plan will be the “biggest tax cut in history,” the proposal is merely a framework for starting tax negotiations. Nonetheless, an agreement over the weekend among Congressional leaders on a short-term spending bill offers hope that Washington officials could formulate a “watered down” long-term budget deal late this year.

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Maintaining Purchasing Power in Today’s Environment | CPI + 5%

Posted by Keith Luke, Paige L. Rabalais on Apr 24, 2017

Topic: Asset Allocation | Industry Knowledge | Investment Strategy

At Commonfund, we understand the challenge institutions face of maintaining the purchasing power of their endowment. In fact, achieving a rate of return sufficient to cover inflation, distributions and investment costs – typically CPI + 5 percent – is much harder today than previously.

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2016 NCSE Key Findings [Infographic]

Posted by Commonfund Institute on Apr 20, 2017

Topic: Asset Allocation | Governance and Policy | Industry Knowledge

For the fiscal year ended June 30, 2016, educational endowments reported a -1.9 percent return as the 10-Year return fell to 5.0 percent. In this infographic, we report the top findings from the 2016 NACUBO-Commonfund Study of Endowments. This annual report studies, on average, over 800 educational institutions that include U.S. educational institutions, private colleges and university endowments, public educational endowments, institution-related foundations (IRFs) and combined public endowment/foundations.

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The Crowded Liquidity Trade

Posted by Ryan Driscoll, Jon Speare, Michael Strauss on Apr 10, 2017

Topic: Fixed Income | Investment Strategy | Operating Assets

Over the past few months, we have seen a massive shift of investor assets from prime to government money market funds in response to post-crisis regulatory amendments that have been years in the making. Surprisingly, the market reaction happened quickly and dramatically, even though the changes were widely known. In October 2016, SEC rule amendments were implemented to prevent the possibility of cash investments, specifically prime money market mutual funds, from “breaking the buck” and resulting in liquidity panics in the future.

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Forum 2017 Attendee Statistics [Infographic]

Posted by Commonfund Institute on Apr 7, 2017

Topic: Industry Knowledge | Partners

We recently hosted our 19th annual Commonfund Forum in San Antonio Texas. The event brought together institutional investors to engage in a three-day conference to explore cyclical trends and tactical opportunities that can help support the missions of their institutions.

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10 Key Takeaways from
Commonfund Forum 2017

Posted by Commonfund Institute on Mar 29, 2017

Topic: Industry Knowledge | Investment Strategy | Market Commentary

Commonfund recently hosted its 19th annual Commonfund Forum in San Antonio Texas. The event brought together about 450 institutional investors from the U.S, Puerto Rico and Canada to engage in a 3-day conference to explore cyclical trends and tactical opportunities that can help support the missions of their institutions. More than 60 experts in academia, public policy and government convened in General Sessions, Major Addresses and Breakout sessions. Here are 10 key takeaways from Commonfund Forum 2017.

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Long-Term Trends for Long-Term Investors

Posted by Commonfund on Mar 27, 2017

Topic: Industry Knowledge | Investment Strategy | Market Commentary

As long-term investors, nonprofit institutions have the distinct advantage of having the longest time horizon of any investors – often perpetuity. This affords an opportunity to consider investments based on secular trends that may take years to play out but can also prove to be very profitable. Recently at Commonfund Forum 2017, a panel convened to discuss their expert insights into some of the most compelling long-term trends...

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Fiscal Policy Battle

Posted by Ryan Driscoll, Michael Strauss on Mar 24, 2017

Topic: Market Commentary

Over the last several decades investors have become accustomed to the FOMC providing support in times of volatility. Chair Yellen hasn’t really had the opportunity nor the need to implement aggressive monetary policy. Quite the opposite, she has been focused on unwinding emergency accommodations and beginning to normalize rates as the domestic economy has returned to more sound footing, with both employment and inflation within striking distance of the Fed’s long-run targets.

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What do the Cable Television and Hedge Fund Industries Have in Common?

Posted by David Scarozza on Feb 28, 2017

Topic: Asset Allocation | Hedge Funds | Investment Strategy | Risk Management

These industries may seem an odd pairing, but both are in the midst of a disruption-led, industry-wide rationalization process. The two industries share in common a historically evolved “bundling” price structure, heavily favoring the sellers, that is breaking down due to the recent proliferation of distribution alternatives. This is giving consumers the option to be far more choosey about the prices they are willing to pay for varying levels of content.

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Five Takeaways from Treasury Symposium 2017

Posted by Jon Speare on Feb 23, 2017

Topic: Asset Allocation | Governance and Policy | Industry Knowledge | Operating Assets

Treasury Symposium 2017 was held in New Orleans earlier this month. 285 senior financial officers from over 100 large universities participated in the strategic discussions. Once again, the takeaways from the three-day Symposium were thought-provoking as well as cautionary for the higher education industry.

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Taking Chips off the Table

Posted by Ryan Driscoll, Michael Strauss on Feb 22, 2017

Topic: Equities | Fixed Income | Market Commentary

The question we are often asked is…when should investors begin to take chips off the table? The S&P 500 Index has delivered a 16+ percentage point relative gain compared to the Bloomberg Barclays Aggregate Bond Index since the start of this fiscal year. Near term, we may see a return to a choppy market where stocks still best bonds but with a smaller differential.

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Constraints Faced by Healthcare Endowments

Posted by Commonfund Institute on Feb 17, 2017

Topic: Asset Allocation | Industry Knowledge

As a result of the evolving landscape of the healthcare industry, organizations are increasingly being shaped by pressures affecting both the revenue and expense sides of the income statement.

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Private Credit Opportunities

Posted by James Meisner, Vincent Kravec on Feb 8, 2017

Topic: Asset Allocation | Fixed Income | Investment Strategy

Much has been made of the challenges endowment, foundation and nonprofit investors face in achieving a CPI+ five percent return target. One way to improve the probability of attaining this goal is to take advantage of the so-called “liquidity premium.”

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Does Your Investment Policy Statement Account for Risk?

Posted by Commonfund Institute on Jan 20, 2017

Topic: Governance and Policy | Industry Knowledge | Investment Strategy | Risk Management

In the past, many investment policy statements gave relatively cursory treatment to risk, its quantification and its potential impact on the asset pool. Market collapses and credit crises demonstrated that many institutions’ portfolios carried unacknowledged risks, that their risk profiles in general were higher than they thought, and that the risk tolerance of their fiduciaries was lower than acknowledged. Today, then, it is entirely appropriate to put risk at the top of the process of investment policy development.

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Global Policy Divergence Arrives in 2017

Posted by Ryan Driscoll, Michael Strauss on Jan 17, 2017

Topic: Market Commentary

Notwithstanding the slower than expected normalization of U.S. monetary policy, the United States economy is in the best shape as compared to other developed and emerging markets as we enter 2017.

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Healthcare Endowment Management: 3 Questions to Consider

Posted by Commonfund Institute on Jan 10, 2017

Topic: Governance and Policy | Industry Knowledge | Investment Strategy

The healthcare business model is changing. Mounting cost pressures are forcing small and mid-sized nonprofit healthcare organizations to consider adopting endowment management practices similar to those used elsewhere in the nonprofit sector. In the face of declining reimbursement from insurance companies and governmental payers, nonprofit healthcare organizations are confronted with an unprecedented series of challenges.

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Real Estate Credit Environment: Risk Off – Risk On

Posted by Paul Von Steenburg on Jan 9, 2017

Topic: Asset Allocation | Real Estate | Risk Management

Earlier last year real estate markets received a scare as CMBS spreads widened, particularly in lower-rated and more junior tranches. Additionally, one of the most respected U.S. real estate research firms predicted outright price declines for the asset class in 2016. While credit conditions have tightened, particularly for construction financing, wider scale credit concerns have largely dissipated and CMBS spreads have tightened.

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Taking Away the Punch Bowl

Posted by Ryan Driscoll, Michael Strauss on Dec 19, 2016

Topic: Governance and Policy | Investment Strategy | Market Commentary

A combination of better economic growth, including stronger labor conditions and signs of a bottoming in inflation, provided the Fed with an opportunity to restart the normalization process by raising short rates 25 basis points at the mid-December FOMC meeting in what “Fed-watchers” from decades ago might term “taking away the punchbowl just when the party is warming up”. . .

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Drafting Your Investment Policy Statement: 10 Critical Issues

Posted by Commonfund Institute on Dec 12, 2016

Topic: Governance and Policy | Industry Knowledge | Investment Strategy

There is no single ‘right’ investment policy statement; each institution’s board must craft a statement that responds to the needs of the institution and the preferences and risk tolerances of the trustees. Annual review of the statement by the board can help to ensure...

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Venture Capital – Looking Forward and Upward

Posted by Aaron Miller, Kent Scott on Dec 5, 2016

Topic: Investment Strategy | Private Capital

Beginning in the second half of 2015, there was growing caution that started to impact pricing and investment activity in early 2016. This valuation cooling period and subsequent shift in mindset appears to have been brief and private valuations have generally held steady, particularly in early-stage. The market appears to be bifurcating where companies in large markets that are growing with attractive unit economies are able to close financings at high valuations while companies with average performance are experiencing protracted fundraisings at mixed valuations. As a result, we continue to see more money going into fewer and higher profile winners.

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A False Sense of Diversification?

Posted by David Scarozza on Nov 29, 2016

Topic: Asset Allocation | Equities | Investment Strategy

As we have undergone the process of re-underwriting all of Commonfund’s equity managers and funds over the last 6 months, we have tackled anew the age old question of how many funds does one multi-manager equity portfolio require to offer appropriate levels of diversification? While there is no single universally appropriate answer, our research has indicated that, upon closer inspection, many multi-manager equity portfolios may not be quite as diversified as intended from a potential excess return perspective.

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America’s Brexit Moment

Posted by Ryan Driscoll, Michael Strauss on Nov 17, 2016

Topic: Market Commentary

Americans voted for change last week and, in similar fashion to the financial market response to Brexit in late June, the initial response from the financial markets quickly proved to be wrong.

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Commonfund Election Update: Missions and Markets

Posted by Catherine Keating on Nov 11, 2016

Topic: Governance and Policy | Investment Strategy | Market Commentary

Commonfund is a firm that marries mission and markets in a unique way. And so today we assess the implications of last night's Presidential election on our clients' nonprofit missions as well as on the markets that we invest in together. There were many headlines about markets today, but few about mission. Yet we think that this is an important moment for mission-based organizations.

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Earnings Trump Elections

Posted by Ryan Driscoll, Michael Strauss on Oct 28, 2016

Topic: Market Commentary

The domestic stock market has staged a token improvement since the mid-month start of the earnings cycle as generally favorable earnings news has offset a good portion of the pre-election fears. If the elections unfold as the polls currently suggest, a modest relief rally could occur, as a portion of this idle cash is likely to be reinvested into the capital markets.

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How Does Board Structure Affect Performance

Posted by Commonfund Institute on Oct 19, 2016

Topic: Governance and Policy | Industry Knowledge

The structure of a board has an important influence on its effectiveness, and being cognizant of these matters is essential to improving a board’s performance. In this article, we'll discuss four major factors that relate to the structure and composition of effective boards.

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The Fiduciary Case for Carbon Exposure Management Now

Posted by Commonfund Institute, Jess Gaspar on Oct 18, 2016

Topic: Investment Strategy | Responsible Investing

The year 2015 featured a wealth of global warming headlines: the December Paris Agreement on climate change, the Pope’s Encyclical, the collapse of oil prices, the Obama administration’s Clean Power Plan, France’s mandatory carbon reporting and the New York Attorney General’s subpoena of Exxon Mobil. It was also the warmest year on record.

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Yearning for Earnings

Posted by Ryan Driscoll, Michael Strauss on Oct 7, 2016

Topic: Market Commentary

The third quarter earnings season is set to begin next week. S&P 500 companies are now anticipated by equity analysts to report yet another quarterly drop in year-over-year earnings. For more than a year, many strategists have been touting that stocks have to decline given the challenges with corporate earnings.

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Real Estate – Rates, Rates, Rates

Posted by Paul Von Steenburg on Sep 30, 2016

Topic: Investment Strategy | Real Estate

“There are three things that matter in property: location, location, location”. While the age-old adage still holds in many respects, real estate risks...

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Fiduciary Responsibility:
A Board’s Purpose and Role

Posted by Commonfund Institute on Sep 27, 2016

Topic: Governance and Policy | Industry Knowledge

Achieving excellence in board governance requires success in four crucial areas: capable leadership, a sound organizational structure, attention to fiduciary responsibility and a culture that binds the board members to each other in a cohesive unit.

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The Central Bank Balancing Act

Posted by Ryan Driscoll, Michael Strauss on Sep 23, 2016

Topic: Market Commentary

The balancing act conducted by monetary policy leaders at the Bank of Japan (BoJ) and the Federal Reserve this week was impressive. Japanese officials announced a new way of providing monetary policy stimulus, while U.S. officials voted to hold rates steady, but both lowered and extended out the bar for monetary policy normalization in the future. The net result of these events improved investor confidence and provided a catalyst to a rebound in risk assets.

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Where Did Our Operating Income Go?

Posted by Ryan Driscoll, Jon Speare, Michael Strauss on Sep 15, 2016

Topic: Fixed Income | Governance and Policy | Industry Knowledge | Operating Assets

Treasury managers face a new challenge to an old problem. Their institutions historically have relied on operating income to provide a necessary influx to operating budgets. Prior to 2008, risk free or minimal risk investments provided support for operations with returns that are currently unimaginable. The concept of a risk-free instrument yielding anything significantly above 0% in the future does not take into account the post crisis world of capital markets, specifically cash markets. So, the world of five percent cash returns is gone, and has little chance of re-emerging. This leaves a shortfall in how treasury managers balance budgets and fund capital initiatives going forward.

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Setting the Fed’s Table

Posted by Ryan Driscoll, Michael Strauss on Aug 31, 2016

Topic: Market Commentary

Chair Yellen's speech at the Kansas City Fed's annual Jackson Hole symposium last Friday stressed that the economy is "nearing" the Fed's goals of full employment and stable prices. The key takeaway from the speech was that Yellen believes the “case for an increase in the federal funds rate has strengthened in recent months” as she stressed that “based on this economic outlook, the FOMC continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives.” These comments, along with signs that the real GDP is potentially rebounding into the three percent range this quarter, set the Fed’s table that a policy adjustment could take place as early as the September 20-21 FOMC meeting.

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It’s Not Easy Being Active

Posted by Mark Bennett on Aug 30, 2016

Topic: Equities | Investment Strategy

It's not easy being an active equity manager these days. We’ve had the great financial crisis of 2007-2008, a technology/internet bubble in 1998-1999 culminating with a sharp and prolonged bear market from 2000-2002, and most recently the European crisis in 2011. What made 2016 worse than those prior periods? There is not one easy answer to that question, but a series of shifts in the investment landscape that deserve mentioning.

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Opportunities Arise for Liquidity Investors

Posted by Jon Speare, Michael Strauss on Aug 19, 2016

Topic: Market Commentary | Operating Assets

For the last several months, significant asset flows have moved from institutional to government-only money market funds in anticipation of new regulations. On October 14, 2016 regulations will finally go into effect for non-government institutional money market funds, with the highlighted feature being the shift from a fixed $1 transaction share price to a floating NAV. These portfolios will be priced using the market-based value of the actual portfolio holdings, out to four decimals. This means that Endowments, Foundations, and other businesses that manage operating cash will no longer be able to hold funds in stable fixed $1.00 share price institutional money market accounts.

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The Billion Dollar Dilemma

Posted by Commonfund on Aug 12, 2016

Topic: Governance and Policy | Industry Knowledge | Outsourced Investing

Finding the right investment governance model for your institution isn’t about size. In the hyper-competitive world of endowment management, something curious happens when the word used to describe the size of an endowment changes from starting with the letter “m” to a word that starts with the letter “b.” Yes, Billion. With a “B.”

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Jobs Take Stocks to New Highs

Posted by Ryan Driscoll, Michael Strauss on Aug 11, 2016

Topic: Market Commentary

For the second consecutive month, the employment report confirmed that the weak jobs reading in May was a temporary distortion. The stock market responded accordingly, as domestic stocks rallied to new highs.

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As Domestic Profits Turn

Posted by Ryan Driscoll, Michael Strauss on Jul 29, 2016

Topic: Market Commentary

Despite the weaker than expected real GDP reading for the just completed second quarter, the demand side of the economy was solid as real consumption spending grew at a 4.2 percent pace. Likewise, real final sales to private domestic purchasers rose 4.7 percent. The gains in these two components were the strongest increases in two years. At the end of the day, the important question is; what does it mean for corporate profits and future business activity?

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Commonfund Roundup
07-29-16

Posted by Commonfund on Jul 29, 2016

Topic: Equities | Industry Knowledge | Investment Strategy | Market Commentary | Responsible Investing

Commonfund's July Roundup features the Commonfund Study of Responsible Investing: Foundations Survey and Press Release; a webcast on the FY2016 Equity Performance Review, hosted by Mark Anson, Chief Investment Officer, Kris Kwait, Head of Investments, and Keith Luke, President, Commonfund Securities, Inc.; along with the latest weekly economic podcasts by Chief Economist, Michael Strauss.

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Global Bonds – Not what they used to be

Posted by James Meisner, Vincent Kravec on Jul 28, 2016

Topic: Fixed Income

A constant topic of conversation in the financial media in recent years has been the degree to which central bank intervention across the globe has suppressed volatility in the markets and has caused global bond yields to fall to historically low levels. Some market veterans with a long-term perspective shake their heads in disbelief at current levels, warning others like a modern-day Cassandra, that bond investors will be in for a world of hurt once yields begin to rise.

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Five Laws that Led to Uniformity in Nonprofit Governance

Posted by Commonfund Institute on Jul 26, 2016

Topic: Governance and Policy | Industry Knowledge

As the American economy began to function on a more truly national basis in the closing decades of the nineteenth century, it became apparent that users of the legal system – including corporations, financial institutions and trustees – would benefit from a greater degree of legal uniformity in nonprofit governance among the states. At least with respect to the laws affecting investment and trust matters ...

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Summer Doldrums

Posted by Ryan Driscoll, Michael Strauss on Jul 25, 2016

Topic: Market Commentary

Why Doesn’t it Feel Like a Record High? U.S. stocks closed last week at a record high amidst geopolitical and economic uncertainty around much of the world. Notwithstanding better market performance, many investors feel left out as rising markets have not lifted all boats. However, with domestic economic data showing signs of continued improvement and with earnings bottoming, what was a headwind may become a tailwind, particularly for those industries that can generate earnings and cash flow.

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Better Understanding Responsible Investing Practices

Posted by Vikki Spruill on Jul 22, 2016

Topic: Responsible Investing

How can you do the most good, with limited resources, when facing enormous problems? That question lies at or near the heart of every decision at a foundation. This is true of the grant dollars which support community institutions and provide for social services, and it is true of the endowed dollars which are invested to in order to fund future grantmaking – providing for generations to come and needs unforeseen.

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Breakout not Breakup

Posted by Ryan Driscoll, Michael Strauss on Jul 15, 2016

Topic: Market Commentary

For the last several weeks, market participants have focused on the fears of a breakup of the European Union, especially after the “Brexit” vote. At the time we stressed that cooler heads should prevailand that these risks could provide investment opportunities for long-term investors.

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A Framework for Nonprofit Governance

Posted by Commonfund Institute on Jul 12, 2016

Topic: Governance and Policy | Industry Knowledge

Regulation of nonprofit investment and governance practices have migrated from traditional common-law principles to codified statutory law, affecting areas of nonprofit governance not addressed in the original legislation. Two important laws enacted in the last 15 years have had an impact far beyond the intent of their original authors, causing major, if little-noticed, changes in nonprofit governance; The Sarbanes-Oxley Act of 2002, and the Uniform Prudent Management of Institutional Funds Act (UPMIFA). In this newly-created “normative environment,” nonprofits can appear to be departing from best practice if they fail to comply with the standards set by these laws, even if the laws were not intended to apply directly to those situations, and boards of such institutions...

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Jobs Slowdown Proves Fleeting

Posted by Ryan Driscoll, Michael Strauss on Jul 8, 2016

Topic: Market Commentary

The sharp bounce back in nonfarm payrolls in June confirms that the Fed, as well as many market participants, overreacted to the weak labor data released a month ago.

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Brexit: Cooler Heads Prevail

Posted by Ryan Driscoll, Michael Strauss on Jul 5, 2016

Topic: Market Commentary

Since the Brexit vote, several continental European officials have moved to a hardline stance as witnessed by recent comments from Angela Merkel who stressed that the U.K. can't expect favorable treatment once it leaves and that there will be no informal talks on a new relationship before the government in London files its application for divorce.

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Integration of ESG Factors in Practical Steps

Posted by Commonfund Institute on Jul 1, 2016

Topic: Asset Allocation | Governance and Policy | Investment Strategy | Responsible Investing

In the current climate of slow global economic growth and resource constraints at many institutions, integration of ESG considerations in an organization’s investment portfolio may be perceived as a luxury or an unacceptable distraction. ESG implementation does not, however, need to be an all or-nothing decision. A sliding scale of engagement is available for institutions that decide to explore ESG...

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Commonfund Roundup
06-29-16

Posted by Commonfund on Jun 29, 2016

Topic: Asset Allocation | Governance and Policy | Industry Knowledge | Investment Strategy | Market Commentary | Responsible Investing | Risk Management

In this month’s Commonfund Roundup, active management and risk are leading topics. Featured articles include: an interview in Institutional Investor with CEO, Catherine Keating, where she discusses the active-versus-passive debate and more; and “Active Management Fatigue and What to Do About it,” co-authored by Kristofer Kwait, Head of Investments; Jess Gaspar, Head of Asset Allocation and Research; and John Delano, Head of Analytics. Also included, the new white paper, "Striking the Balance: A Fiduciary Approach to Risk and the Investment Policy"; the latest weekly economic podcasts and more.

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Brexit: Order from Disorder

Posted by Mark J.P. Anson, Michael Strauss on Jun 24, 2016

Topic: Investment Strategy | Market Commentary

The UK’s vote to leave the European Union (EU) has sent shock waves through the capital markets throughout the day today. The 52%/48% vote to leave the EU was a significant surprise, as most polls had the “remain” camp winning.

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Bridging the Gap: Carbon and Fiduciary Responsibility

Posted by Alex Gurvich on Jun 20, 2016

Topic: Asset Allocation | Governance and Policy | Responsible Investing

Most institutional investor discussions and actions regarding global warming have been at two ends of the spectrum: either divest from fossil fuels entirely or remain fully invested. A better approach would be to change the conversation from a tug of war over a binary decision, between investment considerations and environmental appeals, to a more balanced discussion centered on common objectives.

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“FedSpeak” Translated

Posted by Ryan Driscoll, Michael Strauss on Jun 17, 2016

Topic: Market Commentary

It was a week of inaction as the FOMC, Bank of Japan and Bank of England kept their key interest rates unchanged. None of these announcements were unanticipated. The Bank of Japan is still in “wait and see” mode to assess the effectiveness of previous policy moves and the Bank of England is focused on the upcoming Brexit vote.

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Investment Management
Principle 7: Fiduciary Responsibilities

Posted by Commonfund Institute on Jun 16, 2016

Topic: Governance and Policy | Industry Knowledge

In this final installation of Commonfund's 7-part series of Principles of Investment Management, we will review Principle #7: Fiduciary Responsibilities. The responsibilities of those charged with oversight of a long-term investment fund such as an educational, religious or charitable endowment, foundation, hospital asset pool or pension fund differ fundamentally from those of other investment fiduciaries. It's essential to define the roles of trustees, investment officers...

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Responsible Investing for Foundations

Posted by Commonfund Institute on Jun 13, 2016

Topic: Asset Allocation | Investment Strategy | Responsible Investing

Commonfund and Council on Foundations are thrilled to announce the release of the 2016 Council on Foundations – Commonfund Study of Responsible Investing. It is the largest and most detailed survey to date on practices, policies and attitudes relating to socially-responsible investing (SRI), environmental, social and governance integration (ESG) and impact or mission-related investing (MRI) among U.S. private and public founda­tions. The Study encompasses both the policies of foundations that have adopted any of the responsible investing practices listed and the attitudes toward responsible investing of those that have not.

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Top Ten Risks for Practicing CIOs

Posted by Bruce Zimmerman on Jun 8, 2016

Topic: Governance and Policy | Risk Management

A Chief Investment Officer’s primary responsibility is to identify and clearly communicate his/her portfolio’s risks to his/her Board, Investment Committee and/or client(s). About eighteen months ago, the University of Texas Investment Management Company (UTIMCO) developed a ten item framework to help with this responsibility. Read more from CEO and CIO of UTIMCO, Bruce Zimmerman.

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Sometimes You Get One Bad Egg

Posted by Ryan Driscoll, Michael Strauss on Jun 7, 2016

Topic: Market Commentary

The first week of June seemed fairly uneventful as the S&P 500 traded in a ten point range leading up the release of the employment report on Friday. However, that trading range didn’t hold after it was revealed that hiring in May was far less than the consensus estimates.

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Common Concerns about Responsible Investing

Posted by Commonfund Institute on Jun 6, 2016

Topic: Governance and Policy | Investment Strategy | Responsible Investing

Discussions about whether responsible investing strategies help or hurt investment performance are complicated by the fact that, there are several broad categories of responsible investing practice and they influence portfolios in different ways. Many institutions have concerns about whether and how to apply ESG investing practices to their portfolio. These reservations stem partly from their past experience with SRI and partly because ESG investing has only recently become more widespread. While there are many concerns about responsible investing, the most common concerns...

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Operating Charity Implements Risk-Based Investment Policy

Posted by Commonfund Institute on May 31, 2016

Topic: Governance and Policy | Industry Knowledge | Investment Strategy | Risk Management

Operating charity in the Northeast is in the process of implementing a risk-based investment policy for its $30 million endowment. The seven-member investment committee is comprised of individuals with experience at leading securities and investment firms. In drafting its IPS, the committee created a separate section entitled "Risk Tolerance"...

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Trouble With the Curve? Not Yet.

Posted by Ryan Driscoll, Michael Strauss on May 31, 2016

Topic: Market Commentary

In recent weeks and months the Treasury yield curve has flattened which has fueled what we believe are misplaced fears that economic challenges (including a potential recession) are just around the corner. In contrast, the domestic economic readings released the last month have provided ammunition to our view that a significant rebound in economic activity is unfolding which will give the Fed with an opportunity to restart the normalization process.

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Commonfund Roundup
05-31-16

Posted by Commonfund on May 31, 2016

Topic: Asset Allocation | Governance and Policy | Industry Knowledge | Risk Management

This month's Commonfund Roundup features a webcast of Catherine Keating on the panel, "Thematic Investing and Portfolio Strategies: Betting on the Megatrends", at Milken Institute's Global Conference; Mark Anson and Ryan Driscoll's article, "Unhedged Commentary: The $3 Trillion Question," published in Institutional Investor’s Alpha; Commonfund Forum Spotlights, "The Big Picture: Integrating Investments, Finance and Development" and "Ideas for Next Gen Energy Investing"; along with the latest economic pod casts and more.

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A Positive May Through Memorial Day

Posted by Ryan Driscoll, Michael Strauss on May 27, 2016

Topic: Market Commentary

The S&P 500 gave investors a little more reason to celebrate this weekend as we approach the “unofficial” start to summer and an eagerly anticipated three day holiday. Mid-week the benchmark equity index posted sizable back-to-back gains of 1.37 percent and 0.70 percent respectively to bring month-to-date performance back into the green. As of mid-day Friday, the S&P 500 has returned approximately 3.55 percent in 2016.

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Time to Temper Interest Rate Risk in Operating Portfolios

Posted by Jon Speare, Michael Strauss on May 25, 2016

Topic: Investment Strategy | Market Commentary | Operating Assets

Given the changing tone coming from Fed officials the last two weeks and the latest FOMC minutes, it appears that our monetary policy leaders are looking for an opportunity to restart the normalization process for short rates. As we highlight in our latest web commentary “When Doves Change Their Feathers”, Fed officials are trying to correct the financial market’s assessment of the most likely path for monetary policy.

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Investment Management
Principle 6: Cost Management

Posted by Commonfund Institute on May 24, 2016

Topic: Governance and Policy | Industry Knowledge

In this installation of Commonfund's 7-part series of Principles of Investment Management, we will review Principle #6: Cost Management. The costs of your investment program can quietly undercut returns; make sure you keep those costs reasonable in relation to the returns you expect to receive. The investment management function requires a deliberate commitment to cost management. Cost control essentially involves three types of activity...

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Betting on the Megatrends:
Thematic Investing

Posted by Commonfund on May 23, 2016

Topic: Investment Strategy | People

Commonfund President and CEO Catherine Keating was a panelist at the 19th annual Milken Institute Global Conference on May 2, 2016. The panel was entitled, “Thematic Investing and Portfolio Strategies: Betting on the Megatrends”.

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When Doves Change Their Feathers

Posted by Ryan Driscoll, Michael Strauss on May 23, 2016

Topic: Market Commentary

It was a week where several Fed doves completed their transition to hawks and investors became distinctly aware that the possibility of two rate increases from the FOMC in 2016 was still the Fed’s base case scenario. The recent weak 0.5 percent GDP calculation might have given investors a false sense of comfort that the Fed would keep monetary policy in a holding pattern.

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Is Value Investing Dead?

Posted by AJO Partners on May 20, 2016

Topic: Equities | Investment Strategy | Market Commentary

AJO Partners' Jocelin Reed explores the current debate about value investing in a thoughtful manner, uncovering sector biases that exist with style investing. Is Value Investing Dead? We think not, but it might seem so. In fact, we observe a bizarrely large influence of sectors (versus stocks) in the latest value/growth regime.

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Deciding on an OCIO Provider: Three Factors to Consider

Posted by Commonfund Institute on May 17, 2016

Topic: Governance and Policy | Industry Knowledge | Investment Strategy | Outsourced Investing

One of the most important aspects of the success of an organization’s OCIO model is defining the respective roles and responsibilities of the institution’s board, staff, investment committee and the outsourced CIO. Investment committees should think carefully about the institution’s ultimate goals in order to articulate objectives that are understandable and clear.

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As the Earnings Turn

Posted by Ryan Driscoll, Michael Strauss on May 16, 2016

Topic: Market Commentary

As we come to the end of earnings season it is time for a post mortem report. We now have a clearer picture of how domestic corporations fared in three months that had unseasonably mild weather and very low energy prices. Through mid-May, more than 90 percent of reporting companies in the S&P 500 index have released first quarter 2016 earnings. Of those, 341 (75 percent) have surprised to the upside on an earnings-per-share basis with approximately 57 percent reporting positive growth. This was slightly better than the typical 70 percent “sandbag” beat that has been reported most quarters. The overall average earnings growth rate is currently at a negative -8.75 percent which is the fourth consecutive quarter with declining earnings from the peak last year. However, excluding energy and materials, earnings are only down 0.91 percent for the quarter. Moreover, many businesses are beginning to see signs of a tailwind from the recent moderation in the strength of the dollar and lower input costs.

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Responsible Investing:
Terminology and Background

Posted by Commonfund Institute on May 9, 2016

Topic: Industry Knowledge | Responsible Investing

The terms socially-responsible investing (SRI), mission-related investing, impact investing and environmental, social and governance (ESG) investing – all frequently grouped under the heading of responsible investing – have become a familiar part of the vocabulary of institutional and retail investors. Just what these terms mean in practice, however, and how their practitioners’ claims can be impartially assessed, has been less clear.

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Caribbean Quandary

Posted by Ryan Driscoll, Michael Strauss on May 6, 2016

Topic: Market Commentary

A small United States territory in the northeastern Caribbean is causing a lot of headlines as of late. This island, about 1,000 miles southeast of Key West has accumulated $72 billion in debt.

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Strategies for The New World of Cash Investing

Posted by Jon Speare on May 4, 2016

Topic: Operating Assets

This week at the Association for Financial Professionals New England meetings, I participated in the panel entitled “Strategies for the New World of Cash”. Our discussion focused on upcoming money fund reforms scheduled for October 2016 and the ramifications for large cash and operating asset investors.

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