Sandra Urie heads a firm that advises 184 colleges and universities, 32 independent schools and 25 foundations affiliated with institutions of higher education, among many other kinds of clients.
Ms. Urie always wanted to be a teacher when she was growing up. A linguist who speaks three languages, Ms. Urie decided to teach Russian. She was hired by her alma mater, Phillips Academy, Andover, Mass., to teach part-time and to spend the rest of her time in administration, starting in the admissions department. She went on to join the development staff and eventually became associate secretary of Phillips Academy, leading its annual giving and alumni programs.
Ms. Urie left Phillips to pursue a graduate degree at Yale, filling in what she considered gaps in her financial knowledge. She said: It was like a light bulb went off in my head when I took the finance and investment classes. It was totally new to me. After a summer interning at an investment bank, Ms. Urie decided she liked the educational aspects of consulting better and leaned toward Cambridge in particular because of its largely non-profit client base. She joined Cambridge as a general consultant. She was promoted to chief operating officer and was named president and chief executive officer in 2001.
What are the challenges and rewards of working with endowments, foundations and non-profits? Ive been here for 22 years and I would say that the rewards far outweigh the challenges. I wouldnt have stayed here so long (if that werent the case). I love the non-profits because theyre mission-driven. I think one of the challenges for people on the financial end is the mission-driven aspect of these institutions. They make good economic decisions, but sometimes it makes more sense to pay the faculty more and then figure out how youre going to pay for it later, to make sure that your mission is secure. So I think there are particular challenges when an organization is not bottom-line driven; you have to be sensitive to those issues. Bottom-line driven people might say that it makes perfect sense to cut staff, for example. But you have to step back and understand theres an educational or museum program or some level of care or grant-making or whatever it is they are doing that is very critical to achieving their mission.
Whats different about providing investment advice to non-profits, compared with pension funds? For non-profits, their liability is the spending stream that flows from the endowment to support operations. What were trying to help them understand is that if they intend to be a perpetual institution, which nearly all of them do, they need to preserve the purchasing power of the endowment over time. Frequently, early on when I would go into relationships (with clients), I would help them to understand that in order to preserve purchasing power, they could only spend the real portion of their returns and had to return the inflation portion of their returns back into the corpus to keep up with inflation in the value of the endowments. We look at endowments as though each were a closed system and assume that the gifts are for incremental programs for more financial aid or other programs not to compensate for overspending.
What happens when an institution receives a very large gift, say $1 billion or more? They typically integrate it pretty quickly into the endowment, but institutions have to plan for that kind of increment to their endowment. If they have a 5% spending rule and they apply it immediately, it can cause all kinds of increases in spending. With that kind of increment, I think stepping back and doing some kind of strategic plan (makes sense). (The gifts) frequently are not a surprise; its just the timing of it that may be uncertain. If institutions have a good statement of investment objectives and policies and a good asset allocation plan, what it can do for some is enable them to access a broader opportunity set of investments. They can think of perhaps going to a direct investment, rather than a fund of funds, because they now have scale, or putting an investment office in place We have seen institutions go from small to medium-sized very quickly. The Salvation Army, for example, received a very large gift several years ago. That triggers quite a bit of self-examination and a disciplined approach.
Are your clients able to find enough capacity when it comes to increasing their alternative investments? Id say yes and no. On the hedge fund side, yes. If they are willing to be patient, they can put a hedge fund program in place and scale it up. I think its more challenging on the venture side, just because those funds are smaller.
We have a wonderful client group. They are long-term investors. They are desirable investors and good partners. But we cant guarantee access, nobody can. We try to position our clients to be able to access capacity.
If you think about a midsize endowment, say $500 million, with a 10% allocation to hedge funds, or $50 million in order to diversify away from manager risk, theyre likely to have 20 or so managers in that portfolio. So youre down to $2.5 million those chunks (of capacity) arent hard to get. Its harder, I think, for a large pension fund that wants to put, say, $3 billion to work to accomplish that. We have 200 clients with less than $100 million in their endowments. Were dealing with a very different type and size of client, and not only do they have an advantage because they are very long-term investors, but also because of their size. Theyre taking small bites.
How does Cambridge keep abreast of new managers and cutting-edge strategies? Our roots are in research. We started as the external research arm of a consortium of major university endowments, and weve never abandoned those roots. So a large proportion of our staff (is) engaged in gathering information for our databases and then analyzing that information. Many years ago, just having the facts was an advantage. Now, you can argue that information is a commodity, but knowledge is not. For example, in traditional marketable securities areas we have close to 5,000 products in our database. In the hedge space we (track) 1,700 managers in our database. In non-marketable (securities), we have two databases. One is of open deals 500 as of the end of the year. In the monitoring database, we have 2,700 partnerships and over 50,000 portfolio companies trapped. I think just about everybody out there knows they have to knock on Cambridges door. Weve tracked the number of manager meetings we do a year in all six offices and while on the road, and (the number is) in the thousands, between 50 and 60 meetings a week, perhaps even more than that.
What trends do you see among non-profits, endowments and foundations? Institutions are very concerned about measurements of risk and developing new ways of thinking about risk, moving away from standard deviation. They are interested in developing a more global perspective as opposed to a U.S./non-U.S. viewpoint and thinking about how one would implement that (in an investment program). I dont think its easy to implement, thinking about global trading, being able to buy IBM anywhere, 24/7 trading. I think many more institutions are thinking about what that means and how to position themselves.
Many (institutions) are thinking about conventional categories of asset allocation and whether they still apply as more and more managers are moving away from their strategy box. You certainly see this with hedge fund and other private investment managers.
And many institutions are thinking about governance. How organizations structure themselves for investment planning, implementation and oversight has been a very important topic as the world has become more complex. There are far more choices in these portfolios that used to have maybe eight to 10 managers and now have 50 or 100 managers. How does the traditional investment committee model work? Can it work in a more complex structure? If you think about this as an operational issue, theres no question that the regulatory environment has changed