Insights Blog

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 Bill Jarvis 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 Bill Jarvis 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 Bill Jarvis 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 John Griswold, Bill Jarvis 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 John Griswold, Bill Jarvis 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 Jess Gaspar, Bill Jarvis 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 John Griswold, Bill Jarvis 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 Bill Jarvis 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 Bill Jarvis 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 Bill Jarvis 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 Bill Jarvis 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 Bill Jarvis 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 Bill Jarvis 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 Bill Jarvis 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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Investment Management
Principle 5: Risk Management

Posted by Commonfund Institute on May 3, 2016

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

In this installation of Commonfund's 7-part series of Principles of Investment Management, we will review Principle #5: Risk Management. Risk can be defined broadly as anything that can result in the objectives of the portfolio not being met. The process of risk management seeks to enable fiduciaries to make the best possible investment decisions in the face of uncertainty and to maximize the likelihood that your portfolio objectives will be achieved.

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Commonfund Roundup
05-02-16

Posted by Commonfund on May 2, 2016

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

This month's Commonfund Roundup features our latest Partner Page for OHSU Foundation; Commonfund Forum Spotlight, Emerging Markets: Balancing Risk and Reward; Mark Anson's latest article, "Asset Allocation with Private Equity," published in the Journal of Investment Consulting; along with the latest economic pod casts and more.

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Weak GDP – Real or Residual Seasonality?

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

Topic: Market Commentary

Weak GDP - Real or Residual Seasonality?

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Shaping the Future of Responsible Investment

Posted by Commonfund on Apr 27, 2016

Topic: Investment Strategy | People | Responsible Investing

Commonfund CEO and President Catherine Keating was a panelist at the PRI 10-year Anniversary Conference & Dinner in New York City. The panel, entitled “Is responsible investment ready to impact the world?” was moderated by Michael Wursthorn, Reporter, The Wall Street Journal.

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How Do You Get to Nine Percent?

Posted by Vincent Kravec, Alec Rapaport on Apr 25, 2016

Topic: Fixed Income | Investment Strategy

For much of the first quarter, U.S. below-investment grade corporate bond indices reported yields that exceeded 9 percent, leading to spreads, or additional yield to comparable Treasuries, in excess of 7 ½ percent. Even after the substantial rally in risk assets during March, yields were reported greater than 8 percent with average spreads north of 7 percent. Currently well above long run historical averages, spreads seemingly more than compensated investors for the inherent credit and liquidity risk in high yield bonds. Sounds great, I’ll take it! Or should I?

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Sometimes the Numbers Just Don’t Add Up

Posted by Ryan Driscoll, Michael Strauss on Apr 22, 2016

Topic: Market Commentary

In 1967, music fans were asked to imagine an alternate reality in the song “If 6 was 9”. Now almost 40 years later, the Chinese economic authorities are asking investors to do the same, only this time the question is “If 6.7 was 6.3 or maybe even just 5”. Sadly, numerologists were much more willing…

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Investment Management
Principle 4: Manager Selection

Posted by Commonfund Institute on Apr 22, 2016

Topic: Governance and Policy | Industry Knowledge | Investment Strategy

In this installation of Commonfund's 7-part series of Principles of Investment Management, we will review Principle #4: Manager Selection. In the past trustees did the investing themselves or assigned the task to one or two all-purpose managers. During the last three decades, that model has been superseded by one in which fiduciaries delegate management of the portfolio to a variety of specialized investment managers, seeking those with a demonstrated record of exceeding their benchmarks.

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Emerging Markets

Posted by Jireh Li, Tim Yates on Apr 21, 2016

Topic: Investment Strategy | Private Capital

Notwithstanding the recent rally in several emerging markets, there has been no shortage of challenging headlines emanating from the region over the past year. While China has not experienced a “hard landing”, growth continues to moderate and it has encountered challenges in its economic rebalancing. China’s public stock market, largely dominated by state-run enterprises, dropped precipitously after a meteoric rise over the past 18 months. Latin America is challenged by a deep recession in Brazil that has been complicated by significant political uncertainty and high probability that the current President does not finish her term. Africa is mixed as a strong U.S. dollar has had a positive impact on exporting countries; however the continent is not immune from declining currencies or the fall of commodity prices.

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What’s Next for Operating Assets?

Posted by Jon Speare on Apr 19, 2016

Topic: Operating Assets

After eight years of zero percent rates and a few years of anticipating change, the summer of ’16 is now upon the operating asset investor. All that is certain is change; change in regulation, change in environment, change in offerings, change in rates, and by the end of the summer, change in responsibilities.

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Beige Book A Bit Rosy

Posted by Ryan Driscoll, Michael Strauss on Apr 18, 2016

Topic: Market Commentary

The first quarter ended with investors feeling thankful for the returns they had but concerned about the potential for another weak earnings season and a lackluster tabulation of real GDP. As such April had an inauspicious start with the S&P 500 losing almost 1 percent in the first seven days of trading. However, since the first earnings report on last Monday, the S&P 500 has gained 1.64 percent and banks have doubled that returning almost 4 percent.

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What is Outsourced Investment Management?

Posted by Bill Jarvis on Apr 14, 2016

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

Outsourced investment management, once primarily a solution for small institutions with limited resources, is now used by a broad range of long-term investors. When properly implemented, outsourcing can help institutions with both large and small asset pools to address portfolio complexity and risk management challenges.

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The Struggle for Earnings

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

Topic: Market Commentary

One of the challenges for U.S. corporations the last several quarters has been maintaining positive earnings. The sharp drop in raw material prices and weak overseas economic activity have fueled what is likely to be yet another disappointing quarter. According to FactSet, 2016:Q1 S&P 500 earnings are estimated to decline 8.5 percent from year-ago levels, which would represent the fourth consecutive yearly decline in earnings from the peak early last year. During the quarter, many equity analysts lowered earnings projections by close to 10 percent on a bottom-up basis, with the greatest weakness centered in the energy sector. This is roughly double the typical four to five percent downward adjustment to earnings registered during the majority of the last five years, but is still well below the close to 27 percent downward revision in earnings registered in 2009:Q1.

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Hedge Funds:
How Many (or Few) Does it Take?

Posted by John Delano, Kristofer Kwait on Apr 8, 2016

Topic: Hedge Funds

Hedge Funds: How Many (or Few) Does it Take? It’s straightforward to get an answer to that question, at least superficially: draw at random from a manager universe, build hypothetical portfolios with the selected managers, track performance, repeat thousands of times, and based on the average result, arrive at an optimal portfolio size.

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Investment Management
Principle 3: Asset Allocation

Posted by Commonfund Institute on Apr 7, 2016

Topic: Asset Allocation | Governance and Policy | Industry Knowledge | Investment Strategy

In this installation of Commonfund's 7-part series of Principles of Investment Management, we will review Principle #3: Asset Allocation. Arguably one of the most important investment-related decisions, asset allocation will largely determine the level of risk-adjusted return you are seeking. A key responsibility of the governing board, your strategic asset allocation policy will set the course for investing the fund for many years to come. But determining an optimal asset allocation for your institution’s portfolio involves more than numbers.

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Dr. Jekyll and Mr. Hyde Markets

Posted by Ryan Driscoll, Michael Strauss on Apr 4, 2016

Topic: Market Commentary

Only weeks into 2016 it felt like the worst parts of 2015. However, after selling off 230 points and testing the 1812 area in mid-February, the S&P 500 rallied almost 250 points in the second half of the quarter. One catalyst for the rally was stable domestic economic data supportive of the thesis that the U.S. is economically healthier than many of its global counterparts. Another catalyst was the bounce in oil prices that provided a financial reprieve for the distressed energy sector and ultimately turned one of the laggards in the global markets over the last few years, emerging markets equities, into one of the strongest performers.

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Another Solid Employment Report

Posted by Ryan Driscoll, Michael Strauss on Apr 1, 2016

Topic: Market Commentary

Nonfarm payroll employment increased by 215,000 in March and the unemployment rate was little changed at 5.0 percent. Strong job gains were reported in retail trade, construction, and health care, which offset declines in manufacturing and mining. The revisions for January and February were minimal (a net change of just 1,000), which placed the average payroll increase during the quarter at 209,000, only slightly below the 223,000 per month pace registered during the past 12 months.

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Is Currency an Asset Class?

Posted by Mark J.P. Anson on Mar 29, 2016

Topic: Governance and Policy | Investment Strategy | Risk Management

Currency risk can best be described as the surprise impact that currency exposure has on an investment portfolio. Although currency risk typically confounds investors, it is easy to measure – it is the difference in the return to an unhedged portfolio position versus that portfolio position hedged back to the investor’s domestic currency. So simple to measure, yet so difficult to figure out.

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Commonfund Roundup
03-29-16

Posted by Commonfund on Mar 29, 2016

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

This month's Commonfund Roundup includes the results of the Commonfund Investor Outlook Survey™, Commonfund Forum Spotlights, Sal Khan, Education Reimagined webcast, along with the article, Rethinking Risk and Diversification; the latest economic pod cast and more.

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Planes, Trains, and Automobiles

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

Topic: Market Commentary

A closer look at the events earlier this year shows that the actual improvement in equities started a few weeks earlier in the transportation sector as market participants finally realized that this sector would benefit from low energy costs and a continuation of slow to moderate economic activity. Those who ascribe to Dow Theory would say this could be an omen of positive returns in the future.

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The Fed Abides

Posted by Ryan Driscoll, Michael Strauss on Mar 18, 2016

Topic: Market Commentary

As a follow-up to last week’s commentary, the FOMC, as was widely expected, held monetary policy steady at the March 15-16 FOMC meeting and is now projecting a “lower for longer” path to interest rate normalization than they had been touting since late last year.

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Investment Management
Principle 2: Payout Policy

Posted by Commonfund Institute on Mar 17, 2016

Topic: Governance and Policy | Industry Knowledge | Investment Strategy

In this installation of Commonfund's 7-part series of Principles of Investment Management, we will review Principle #2: Payout Policy. Determining how much of the fund can be transferred each year to the operating budget or to designated beneficiaries while still maintaining the fund's ability to support its mission in the future.

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Super Mario or Sugar High?

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

Topic: Market Commentary

In a week deprived of economic data, market sentiment was mostly driven by the anticipation of central bank action. It was a volatile week for equities but the prospects of better economic conditions and signs of investor asset rebalancing from fixed income to equities fueled a continuation of the rebound since mid-February. Domestically, there wasn’t much to focus on except for an encouraging wholesale inventories report and the storylines of the presidential election season. The U.S. economy will be front and center this week when the FOMC meets on Tuesday and Wednesday. The focus last week, however, was on the overseas central banks who are the accommodative “Yin” to the FOMC’s tightening “Yang” in the world of divergent monetary policies.

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Investment Management
Principle 1: Objectives

Posted by Commonfund Institute on Mar 11, 2016

Topic: Governance and Policy | Industry Knowledge | Investment Strategy

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. The differences arise primarily from the nature of these funds’ beneficiaries. In this 7-part series, we’re going to discuss key issues and essential principles of investment management. We’ll start with Principle #1: Objectives.

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It’s the Economy Cupid

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

Topic: Market Commentary

The last five weeks can be divided into two distinct trading periods. Through mid-February it seemed the volatility of 2016 was the new constant and the markets were destined to remain unsettled. However, after re-testing the 1812 lows of the year on February 11th, the S&P 500 rallied approximately 120 points in the second half of the month and then gained another 68 points (3.5 percent) in the first four days of March. Thus, a good portion of the gains occurred after cupid struck on Valentine’s Day.

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God Save the British Pound

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

Topic: Market Commentary

The currency of what has been one of the strongest economies in the European Union (“EU”) has fallen about 15 percent since August 2015 with a good portion of the move occurring this month. The British pound is now at its lowest level in eight years with many speculating it could plummet to levels not seen since 1985, when Margaret Thatcher took on the steelworkers union, if it were to secede from the EU.

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On Narrow Markets and Smart Beta

Posted by Mark Bennett on Feb 28, 2016

Topic: Equities | Investment Strategy | Market Commentary

We’ve all heard a manager complain about narrow markets. We are guilty of it ourselves. What is a narrow market and how do we view it in the context of recent equity performance?

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Indecent Exposure – Counterparty & Currency Implications of an Unstable Europe

Posted by Dana Moreau, Brian Rondeau on Feb 23, 2016

Topic: Risk Management

A lot of attention has been paid to European banks in the last few weeks -- and for good reason. From January 1st to February 11th, the European banks sub-sector of the Euro Stoxx 600 lost over a quarter of its value. Looking back to the highs of the summer, the peak-to-trough move was closer to -40 percent. Despite a recent relief rally, several signs of stress remain.

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The Stock Market Isn’t Always Right

Posted by Ryan Driscoll, Michael Strauss on Feb 22, 2016

Topic: Market Commentary

The sharp stock market selloff in early 2016 sparked fears among many market participants that a deflationary-induced recession had started here in the United States. However, a lesson we learned many years ago was that the stock market is often a bad forecaster of economic conditions.

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Sample IPS Rider for Responsible Investing

Posted by William F. Jarvis on Feb 19, 2016

Topic: Industry Knowledge | Responsible Investing

A number of clients and prospects have asked how their Investment Policy Statement (IPS) can be amended to accommodate responsible investing strategies. In response, we have prepared a rider which can be inserted into the IPS of institutions that are seeking to engage in Socially Responsible Investing (SRI), Environmental, Social and Governance (ESG) investing, Impact investing or total or partial divestment of fossil fuel-related investments.

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CoCos Go Puff

Posted by Ryan Driscoll, Michael Strauss on Feb 13, 2016

Topic: Market Commentary

This past week investors were given a crash course on the contingent convertible bonds (CoCos) issued by European Banks. Since 2013 banks across Europe have been urged by regulators to shore up their capital buffers with what is referred to as Additional Tier 1 (AT1) capital. In response, the banks issued approximately $100 billion of a new form of bonds, tier one contingent convertible bonds, more commonly called CoCo bonds.

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Obama Clean Power Plan Stayed by Supreme Court

Posted by William F. Jarvis on Feb 12, 2016

Topic: Industry Knowledge | Responsible Investing

As anticipated in our white paper, Fiduciary Duty & Environmental Responsibility: Crafting a Low Carbon Response, states and industry groups opposed to President Obama’s action to impose stringent EPA regulations on coal-fired power plants have acted quickly to file lawsuits seeking to block the measure.

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Happy New Year!
(Chinese New Year, That Is!)

Posted by Mark J.P. Anson on Feb 11, 2016

Topic: Investment Strategy | Market Commentary

The Chinese New Year began in February and this year it is the “Year of the Monkey.” Now, monkeys are well known for being unpredictable and mischievous animals, full of playfulness and hijinks. In fact, it is their mischievous nature that is responsible for the saying “throwing a monkey wrench” into an otherwise smooth operating process. Indeed, it seems as if a monkey wrench has been thrown into the global equity markets in 2016.

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Dudley Impersonates Draghi

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

Topic: Market Commentary

Last Wednesday, the energy and equity markets both had at least a temporary reversal up day as oil prices rallied almost 10 percent from the lows of the day and the S&P 500, which was at mid-day down 30 points, rallied to finish up 10 points. One of the market headlines investors focused on was OPEC possibly moving to cut production.

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Six Key Questions To Ask OCIO Providers

Posted by Sarah Clark on Feb 4, 2016

Topic: Governance and Policy | Industry Knowledge | Outsourced Investing

Today, few OCIOs that serve nonprofits are total institutional partners. Value-added OCIO providers must no longer view an institution through a purely investment-related, or even finance-related, keyhole. Many institutions require a broader and deeper approach—one that addresses wide-ranging institutional factors that extend well beyond investment management. Here are six key questions that can help you find a provider who takes a holistic approach.

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A Rough Start But A Good Finish

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

Topic: Market Commentary

The market moving headlines for the bulk of the month focused on the slowdown in China and the impact of lower oil prices for the emerging markets and the domestic energy sector. Ultimately, the S&P 500 finished the month down about five percent but up almost seven percent from the intra-month low of 1812. Read our weekly blog post for the most topical events in the latest week.

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Regulation Meets Policy in the Cash Markets

Posted by Vincent Kravec, Alec Rapaport on Jan 26, 2016

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

Right now, central bank policy and money market reform are front and center in the cash markets. Are historic indicators of market stress cause for concern? Or are they reflecting the technical impacts of money market reform?

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Space Mountain:
A Roller Coaster Stock Market

Posted by Ryan Driscoll, Michael Strauss on Jan 22, 2016

Topic: Market Commentary

Whether it was the first time in 1980 or last time in 2015, riding Space Mountain has been a scary event. This blind roller coaster is similar to what has unfolded in the equity market recently. Yes, that first blind drop takes your breath away but in the end you survive. We have written about equity market volatility quite a bit in the last few months. In fact, of the 14 trading days in 2016, nine of them have had a move in the S&P 500 in excess of one percent and four have had a move in excess of two percent.

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New Environmental Regulations and the Impact on Fiduciaries

Posted by Bill Jarvis on Jan 20, 2016

Topic: Governance and Policy | Responsible Investing

Developments in world financial markets seem to occur more quickly every year, requiring ever-higher levels of expertise and experience on the part of investment committees. Climate change is a more slowly-evolving issue that will require a more strategic approach from trustees and investments committees. The Paris Agreement and the Clean Power Plan clearly raise important investment considerations for institutional investors. In addition, beyond portfolio considerations, practical issues suggest themselves.

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It’s Still All About Oil

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

Topic: Market Commentary

The energy complex continued to wreak havoc as crude oil moved below $30 for the first time since 2003 and the Bloomberg Commodity Index fell to its lowest since 1991.

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