Olympic fund strives for endurance

COLORADO SPRINGS, Colo. — U.S. athletes will be aiming to break world records at the Olympic Games in Athens this month, but the foundation that funds the work of the U.S. Olympic Committee has more conservative goals.

The $235 million U.S. Olympic Foundation, the main funding source for the USOC, contributes 5% of its fair market value annually to the USOC's general fund, totaling around $10 million this year.

That funding obligation — along with close scrutiny from the USOC Board during quarterly meetings — convinced the foundation's five-member investment committee to maintain a fairly conservative investment philosophy, said R. Thayer Tutt, committee chairman. Both the USOC and the foundation are located in Colorado Springs.

"We manage money for difficult times. We tend to do very well in bad times," said Mr. Tutt.

"The challenge for us comes when things are good. We tend to underperform in good markets. When the market is doing well, people are grumpy and the phone rings off the hook. When times are bad, people stop calling."

The foundation's conservative investment philosophy has accomplished its goal of meeting its funding obligations, without trying to break any investment world records, Mr. Tutt said.

In the short-term, the foundation portfolio's return for the year ended Dec. 31 was 24.1%, outperforming the 23.35% composite return of endowments and foundations within Wilshire Analytics' Trust Universe Comparison Service. The USOF fund's three-year return was 2.9%, once again besting the 2.56% composite return of peer funds within TUCS.

Over a longer period, the foundation's returns significantly trailed those of peer funds within TUCS. The USOF returned 3.9% over the five-year period ended Dec. 31, compared to the 5.54% TUCS composite return. For the 10-year period, the USOF return was 7.2% vs. 10.07% for TUCS. All multiyear returns are annualized.

The foundation was created in the mid-1980s with the United States' $143 million portion of the surplus generated by the first privately financed Olympics, the 1984 Los Angeles games.

The investment committee and the foundation's single senior staffer — Executive Vice President Ernie Hinck have shifted the asset allocation of the fund regularly since 2000. At that time, the allocation to equities was boosted to 55% from 40%; hedge funds (categorized as alternatives) increased to 15% from 10%; and bonds were cut to 30% from 50%. In 2002, the allocation was set at 50% equities, 30% bonds and 20% alternatives.

As of June 30, the foundation's allocation was 45% domestic equities managed by five managers, 29% fixed income run by three managers, 17% international equities handled by two managers and 9% managed by two hedge funds of funds, Mr. Tutt said. Messrs. Tutt and Hinck declined to name all of the managers the foundation uses or the specific amount each firm manages.

Last year, Mr. Tutt said, investment committee members and the fund's consultant, PRIME Asset Consulting, Weehawken, N.J., bucked the trend in the institutional market toward more hedge fund investments. The foundation cut its hedge fund exposure and moved to funds of funds from direct hedge fund investment.

Still, the foundation has a long history of hedge fund investment. The first chairman of the board of trustees, ex-U.S. Treasury secretary William E. Simon, included them in the foundation's early asset allocations. Mr. Simon "hand-picked" 16 single-strategy hedge fund managers and monitored them assiduously during his chairmanship from 1985 to 1997, Mr. Tutt said.

After Mr. Simon's departure, investment committee members found monitoring so many single-strategy hedge funds too time consuming, and cut the number of managers to nine.

Late last year, seeking greater diversity through the combination of a wider variety of investment strategies and an increase in the number of hedge funds, USOF hired two fund-of-funds managers, Meridian Capital Partners Inc., Albany, N.Y., and The Investment Fund for Foundations, Charlottesville, Va. The nine hedge fund managers were terminated.

Otherwise, the USOF's staff and board have kept the manager roster fairly intact.

In fact, one of the fund's biggest success stories has been from its long-time bond managers: Hyperion Capital Management Inc., New York; Loomis Sayles & Co. LP, Boston; and STW Fixed Income Management Ltd., Carpenteria, Calif.— the same three bond managers Mr. Simon hired back in the mid-1980s.

"It's been the perfect mix throughout all of these years," Mr. Tutt said. He described Hyperion as an "eclectic manager, which takes some very big bets. And they usually are right." STW manages short-term bonds and Loomis Sayles manages junk bonds.

Performance of the bond allocation overall has been great, Mr. Tutt said, with annualized returns of 11.4%, 9.5%, 8.2% and 8.2% over one-, three-, five- and 10-year periods, respectively, ended Dec. 31. Those returns may not knock the socks off all of the annualized return "records" set for the same periods by the Citigroup Broad Investment Grade index of 4.2%, 7.6%, 6.6% and 6.96%, respectively, but as Mt. Tutt noted, they have been getting the job done for the foundation through good and bad years.