Smith College to shutter investment office, moves $915 million outside

NORTHAMPTON, Mass. — Smith College is closing its investment office after outsourcing the investment management of its $915 million in endowment assets.

Smith hired Investure LLC, Charlottesville, Va., a new firm started by Alice Handy, former treasurer at the University of Virginia, to manage the college's investible assets.

Jay Yoder, Smith's director of investments, left in January. He said he is setting up an alternative investment management firm that will be open within the next few weeks, but could not provide details. He would not comment further.

The two remaining investment staff — an analyst and an administrative assistant — also will leave.

With the move to outsourcing, Smith College also is increasing its hedge fund allocation to 35% of total assets from 15%, and its private equity allocation to 25% from 20%. That means 60% of the assets will be invested in alternatives.

At the same time, public equities (domestic and international) were reduced to 30% of assets from 50%, and domestic fixed income dropped to 10% from 15%.

The outsourcing decision evolved from a plan by Smith College's investment committee last year to set up a consortium with several other colleges to "share" an investment office, said Ruth Constantine, treasurer and vice president for finance and administration. The committee was motivated in large part by the recognition that the small liberal arts college, based in western Massachusetts, was not going to attract the talented, specialized staff needed to notch up investments in alternative asset classes.

"We thought a shared office would be an opportunity to access the level of investment expertise that large colleges and universities typically have …. We had a good investment manager, but we needed more in-house specialization," Ms. Constantine said.

After several months of discussion, "just when we were at the point of narrowing down with other colleges what we wanted to do with a shared office, we learned about Alice Handy — who headed up University of Virginia's endowment — and her new company. It was a good match that came at just the right time. Her business model was a terrific match for exactly what we thought we were going to have to create ourselves with other colleges — a shared investment office that we'd have to work hard to attract a top CIO to," Ms. Constantine said.

Ms. Handy admitted there was a fortunate "confluence of events" that matched up Smith College and Investure, which opened Jan. 1.

"It is a most exciting opportunity for me, due to the support of Smith College. They were already there. Most companies don't start out having clients," Ms. Handy said.

Ms. Handy was the long-serving treasurer of the University of Virginia, Charlottesville. In 1998, she helped to spin off the University of Virginia Investment Management Co. into a separate company, and served as its president. When Ms. Handy left UVA last June, she had investment oversight of the college's $1.8 billion endowment and $400 million of several other UVA-related endowments.

Ms. Handy's business model is to manage assets for endowments "exactly as a university investment office would."

Under that model, Investure will assume management of the entire investment function for between four and 10 colleges with endowments ranging from $150 million to $1 billion. Investure will manage client assets on a discretionary basis as a manager of managers, using separate account vehicles for traditional asset classes and pooled funds for private equity and hedge fund investments. (At least for now, Smith will retain the asset allocation decision. Investure will manage Smith's fixed-income assets internally, and the rest as a manager of managers.)

Ms. Handy noted it is in the alternative investment arena that Investure likely can add the most value for many small college endowments, which would not have the internal staff expertise nor sufficient assets to easily manage a portfolio of direct hedge fund or private equity assets.

Ms. Handy brought three other staff with her from University of Virginia Investment and the university, including Hance West, managing director in Investure's fixed-income and hedge fund areas, and Chas Cocke, a principal who focuses on traditional asset managers and hedge funds.

Carol Wood, a spokeswoman for UVA, said the university still is searching for Ms. Handy's replacement, but was unable to say whether Messrs. West and Cocke are being replaced or what their titles and duties were.

Bruce Miller also joined Investure as a managing director from real estate manager Carmel Partners Inc., San Francisco, where he was director of acquisitions-Northern California. Mr. Miller will focus on private equity, venture capital and real estate manager research.

Ms. Handy said she is searching now for two more staffers — an analyst to support the investment manager research staff and a chief operating officer/chief financial officer who will oversee office operations and client service.

The company is "backfilling" on support services not directly related to investment management, said Ms. Handy, because staff had to focus almost immediately on managing Smith's endowment, which was transferred in early February. A second client with about $685 million in endowment assets has hired Investure and will transfer its assets by the end of the month. Ms. Handy declined to identify the client.

Ms. Constantine said Investure's commitment to serving a very small group of endowments convinced Smith College's investment committee to hire Ms. Handy and her team.

"Rather than feeling we were outsourcing to a large company, Investure brings a sense to us that ‘this is our CIO' who is managing our assets."

With the new allocation, $100 million is going into hedge funds and $20 million into private equity as soon as possible. Ms. Constantine said Investure is evaluating managers now for the pooled fund vehicles they'll use for these asset classes.

Ms. Constantine said Investure's initial evaluation of Smith's existing managers was positive, but added Ms. Handy and her staff will give a full report to the investment committee in May. Ms. Constantine said manager terminations might not be in the offing in the traditional asset classes, except for domestic fixed income, where Smith's single manager was terminated and Investure assumed management of the assets. Ms. Constantine did not identify the fixed-income manager. In other asset classes, allocations to existing managers probably will be reduced to fill the new targets, she said.

Smith College now uses 29 managers, besides Investure: five for domestic equities; four for international equity; four for hedge fund of funds; and 16 for private equity.

One likely manager change will be gradual. Smith has used hedge funds of funds, rather than the direct investments that Investure will be making in its pooled fund. Ms. Constantine said she anticipates a time when Smith only makes direct investments in hedge funds.