MIAMI — The $1.9 billion John S. and James L. Knight Foundation will outsource investment decision-making to its consultant, Cambridge Associates LLC, Boston, and disband most of its nine-member in-house investment staff March 1.
The decision was made after Timothy J. Crowe, vice president and chief investment officer, announced he will retire this spring, said Larry "Bud" Meyer, vice president of communications and the foundation's secretary. Mr. Crowe joined Knight Foundation in November 1990.
Mr. Meyer said the foundation hired Ennis + Knupp Associates, Chicago, to assist the board in thoroughly reviewing the foundation's investment policies, staffing and options. Possibilities included replacing Mr. Crowe and maintaining the in-house investment team or outsourcing investment management.
"At the end of the day, the board decision was motivated by a desire to ensure both continuity and depth in the management of Knight's extensive investments. Our respect and appreciation for the outstanding work here at Knight by Tim Crowe and his staff cannot be overstated. Our stewardship responsibilities reminded us to do what we think is best for the foundation for the long haul," W. Gerald Austen, chairman of the Knight board, said in a statement.
Mr. Crowe said that once the board decided to outsource the investment function, he and his team of six investment professionals made a pitch for the business: They would leave the foundation together and continue to manage the assets exactly as they do now. But Knight officials chose to go a different route, hiring Cambridge.
The current investment approach is labor intensive and sophisticated. The foundation has been a hedge fund investor for nine years and has always made direct investments, eschewing a fund-of-funds approach.
Knight uses a group of active alternatives managers to invest 59% of assets. This core of alpha generators is surrounded by passive portfolios, Mr. Crowe said, with staff making top-down investment decisions, tilting the passive account tactically and strategically to suit market conditions.
The asset allocation on the active side is 30% hedge funds (in 22 direct investments); 15% buyouts, including private equity and venture capital; 8% real estate; and 6% commodities. Passive allocations are 24% marketable equities, both domestic and international, and 13% fixed income. The remaining assets are in energy partnerships, cash and other miscellaneous investments.
By comparison, Greenwich Associates' annual survey of institutional investors found that the average dollar-weighted asset allocation of 179 U.S. foundations in 2004 was 47.9%, active and 14.1%, passive equity (domestic and international); 21.9%, fixed income; 13.8% alternatives (2.4% equity real estate, 5.5% private equity, 5.9% hedge funds); and 2.3%, other.
He said the asset allocation and investment of the foundation will likely change once he and his team have left, although he couldn't offer specifics.