NEW YORK -- New York University chose to spend $1 billion it raised between 1984 and 1994 to attract top-flight faculty and students, build dormitories and repair buildings on its then-decrepit Greenwich Village campus.
Most universities funnel contributions of that magnitude into their endowments, but NYU's trustees wanted to try to remake the school into a world-class university.
Now, they are attempting to do the same with the endowment, which at $900 million pales in comparison to those of universities of similar academic stature and size.
The trustees took these steps toward accomplishing that goal:
* The investment committee, composed of some of New York's most successful investors, was expanded in 1996.
* Maurice Maertens was hired as chief investment officer for the endowment, a new position.
* The investment committee has implemented an asset allocation that puts the endowment in a growth mode. In the past it has sought to preserve capital.
Wall Street is a short cab ride from the NYU campus. Fortunes are made there; fortunes also are given away. NYU wants to make sure it gets its share.
"I have sat in meetings with potential donors," Mr. Maertens said. "Most want to know that (their money) is being managed competently."
Another C word -- conservative -- best describes the way NYU's endowment had been managed.
Leon Levy is one of the investment committee's newer members and the former head of Odyssey Investment Partners, a New York hedge fund partnership. He oversees a $100 million chunk of the endowment that belongs to NYU's Institute of Fine Arts. The endowment's conservatism led the IFA's trustees to take control of the money and manage it in what they considered a more appropriate manner.
According to Mr. Levy, 50% of the IFA money is invested in hedge funds and other alternatives; the remainder is commingled with the fixed-income portfolios of the general endowment.
The endowment's asset allocation before Mr. Maertens arrived was 80% fixed income and 20% equities. But it was essentially 100% fixed income, because the equities belonged to the IFA.
The investment committee approved a new asset allocation last fall that has a target of 50% equity, 25% alternatives and 25% fixed income.
The changes are to Mr. Levy's liking. Although the IFA money continues to be managed apart from the general endowment, Mr. Levy said, "I would like to see it (one day) affiliated with the endowment. They have a superb committee right now."
The law school's endowment also is separately managed, though legally a part of the overall endowment. Law school officials were unavailable for comment.
Combining the pieces
"I hope as a long-term goal, the endowment will come together and be managed as one entity," said Michael Steinhardt, chairman of the investment committee.
"We are successfully moving in that direction," he said.
The endowment's conservative management was due to its relatively small size and NYU's pre-1984 financial situation, in which the university was close to bankruptcy.
"To some degree, Larry (Board of Trustees Chairman Laurence Tisch) probably felt that it was better to be more conservative in an uncertain climate than others who were responsible for certain schools (at NYU) that were doing quite well," said Mr. Steinhardt.
The successful fund-raising campaign financed the construction and faculty hiring, allowing trustees to leave the endowment relatively untouched, said Mr. Tisch.
Having achieved their goal of improving the quality of NYU, the trustees have now turned their attention to restructuring the endowment's investments.
The first step was taken in 1996, when the investment committee was expanded and Messrs. Levy and Steinhardt, the former chairman of Steinhardt Partners, a hedge fund partnership, were recruited. Next came the hiring of Mr. Maertens, the well-regarded head of the Ford Motor Co. pension fund, who took early retirement from the company.
Traditionally, the CIO's duties at NYU have been handled by the head of the investment committee. George Heyman, a former advisory director with Lehman Brothers, preceded Mr. Maertens, Mr. Tisch said. But Mr. Heyman opted for semiretirement that saw him split time between New York and Florida, and the board decided to recruit a full-time CIO.
Mr. Maertens said he doesn't need to work, but he took the NYU job for the challenge and a chance to return to New York, where he began his career.
The university's new asset allocation decisions are being driven by the adoption of a traditional spending objective for an endowment, which sets the investment horizon in perpetuity, he said.
"We want to maximize the spending consistent with maintaining the purchasing power of the assets. That translates into an equity-dominated portfolio."
Mr. Maertens declined to be specific about changes in the equity manager roster, offering only that the portion of the endowment that was previously invested exclusively in fixed income now has two equity managers.
"The equity managers all have a global benchmark with no capitalization distinction," he said, describing the mandate. "They can buy anything traded in the world. Those kinds of mandates and objectives lead to larger account sizes."
Larger allocations also are the order of the day for the endowment's fixed-income component, Mr. Maertens said. The number of managers has been reduced to three from six with the retention of just one of the previous managers, he said.
"All of the managers (previously) had fairly limited mandates that encompassed a small piece of the fixed-income market," Mr. Maertens said.
"We are trying to capture economies of scale in the market."
Alternative investments
Mr. Maertens and Mr. Tisch confirmed that the university recently committed $25 million to Odyssey Investment Partners Fund L.P., a buyout fund. An undisclosed amount also was committed late last year to Ulysses Partners, a hedge fund, Mr. Maertens said.
Popular with endowments, hedge funds and other alternatives are expected to take on a more prominent role with the NYU endowment, as trustees struggle with investing in a market that is at a historical peak.
"We are prone to use alternative investments, to which we can bring a level of expertise," Mr. Steinhardt said. "There is a great sensitivity (among committee members) to the level of the market. But at the same time we don't want that one fact to dominate our investment policy."
Mr. Tisch said: "Our investment committee doesn't want to be exposed to the vagaries of the stock market. We want to be more market neutral, and I think we are achieving that."
