University of Oregon Foundation officials tend to take a macro view to investing with an asset allocation flexible enough to allow the five-member staff to pursue investment themes.
“We don't take an attitude of filling a bucket,'' said Jay Namyet, chief investment officer of the $775 million foundation. “We identify themes and match a manager that can do it while providing really good returns.
The strategy appears to be working. The Eugene, Ore.-based foundation earned a net return of 2.5% for the fiscal year ended June 30, surpassing its benchmark return for the same period of -0.2%.
University of Oregon foundation compares favorably to its peers. The median gross total return of endowments with $500 million in assets or more was -0.73% for the one-year period ended June 30, according to the Wilshire Trust Universe Comparison Service. The net return of endowments of all sizes in Cambridge Associates Endowments and Foundation Universe was -2.63% for the one year ended June 30.
The foundation's longer-term returns prove the efficacy of its investment thesis. The endowment's net return for the five years ended June 30 was an annualized 8.1%, outperforming its benchmark of 6% for the same period. Meanwhile, Oregon's net annualized return for the 10 years ended June 30 was 6.4%, besting its 10-year benchmark of 5%.
Close to three years ago, University of Oregon Foundation investment staff determined that in the future there would be slower than normal global growth and that both equities and fixed income are expensive, Mr. Namyet said.
“What's worked for the last 30-plus years to generate returns will be challenged going forward,” he said. There are investment areas and themes that can still perform well, he said. “Our job is to discover them and invest in them.”
With a small staff, the foundation officials are selective when it comes to choosing those themes, Mr. Namyet said
“There's an overwhelming amount of data and we need to be highly selective in what we are concentrating on,” he added.
Some of the themes that University of Oregon's foundation has selected recently include the impact of technological advances on the intersection of health care and the aging population and Latin America private debt. Another theme identified from earlier this year was organic farming to take advantage of the wave of Americans who can afford to eat healthier diets, Mr. Namyet said.
One of the foundation's themes of investing in solar and alternative energy in place of fossil fuels put the quiet foundation into the spotlight in September. University students had been campaigning for the foundation to divest fossil-fuel companies since 2014. In response, Mr. Namyet released a statement highlighting the foundation's approach to fossil fuels.
Foundation officials are letting its carbon-based investments wind down, an initiative the foundation started about three and a half years ago, he wrote.
There is a lot of money invested in the oil and gas sector, Mr. Namyet explained. “It's too competitive and we don't know who the winners and losers will be,” he said.
In the Sept. 8 message, Mr. Namyetstressed that the foundation's approach is guided by prudent socially and environmentally responsible investments that produce the returns needed “to support the university's academic mission.”
Nevertheless, he added that the foundation was the first West Coast university to adopt environmental, social and governance considerations for investments.
“We believe that green energy initiatives, such as solar and wind power, sustainable forestry and organic farming will steadily replace investments in carbon-based fuel sources, and we do not have any investments in coal,” Mr. Namyet said.
He doesn't consider it a divestment policy, even though it was proclaimed to be one in the media and by students.
“I don't know where oil and gas prices will go … solar and wind have tailwinds,” Mr. Namyet said.
The foundation's asset allocation, which is re-evaluated annually, gives foundation officials room to make theme investments. Its most current asset allocation has 60% to growth, capital appreciation assets that includes both public and private equities; 15% to inflation protection, which includes commercial real estate, energy infrastructure, commodities, and natural resources such as timber, oil and gas, renewable energy and permanent crops; 15% to absolute return; and 10% to a liquidity bucket, which provides strategic cash for future investment opportunities.
“It's a defensive portfolio,” he said. “We have become more and more defensive over the last couple of years.”
Foundation officials cut the portfolio's dependency on returns from capital appreciation and increased the portfolio's reliance on contractual income flows that come from strategies, he explained. Some 15% of the entire portfolio is now invested in a variety of niche direct lending approaches with contractual cash flows such as real asset debt.
Another way that foundation officials have made the portfolio more defensive is that it splits the public equity portion of its growth portfolio between long only and long/short. Public equities account for 40% of the growth portfolio, he said. The portfolio is currently 30% long only and 70% long/short.
Even with a small staff, the foundation takes a do-it-yourself approach to selecting themes and choosing managers.
Once foundation officials select an investment theme, they research managers and invite them to apply for a mandate. The foundation does not release RFPs, Mr. Namyet said. Nor does it work with a consultant.
Foundation officials are clear about what type of managers they are looking for.
“The foundation looks for highly successful, long-tenured, independently owned investment management firms,” according to a statement on the foundation's website. “A search begins when a need arises. The need may be a function of adding to existing exposures, replacing an existing manager or exploiting an opportunistic theme.”
These managers invest most of their own wealth in their own investment products and typically oversee a single product.
“They understand the single greatest impediment to outstanding performance is trying to manage too much money,” according to the statement.
Thematic investing, let alone without the assistance of a consultant, is not a typical approach for endowments and foundation these days, said David Lindberg, Pittsburgh-based managing director at Wilshire Consulting, the institutional investment advisory and outsourced CIO business unit of Wilshire Associates Inc.
Mr. Lindberg spoke generally and declined to speak about any particular institutional investor including the University of Oregon foundation.
“In general in terms of themes, endowments relative to other kinds of institutional funds ... try to be more opportunistic and do some theme investing,” Mr. Lindberg said. “I think of endowments are out in front that way.”
In some cases, endowments are widening the ranges around their asset allocation targets to allow them to be more opportunistic in today's low-return environment, he said.
But the vast majority of endowments and foundations set aside a dedicated allocation for opportunistic investments rather than invest thematically throughout their entire portfolios, he said.
