Understanding the Outsourced CIO Model February 12 2013

  • Slides: 17
Download presentation
Understanding the Outsourced CIO Model February 12, 2013 Dr. Lisette Cooper Athena Capital Advisors

Understanding the Outsourced CIO Model February 12, 2013 Dr. Lisette Cooper Athena Capital Advisors LLC 55 Old Bedford Road, Suite 302 Lincoln, MA 01773 Tel 781. 274. 9300 Athenacapital. com

Monte-Carlo Analysis for Expected Return 10, 000 simulations, median case. Athena Capital Advisors LLC

Monte-Carlo Analysis for Expected Return 10, 000 simulations, median case. Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission. | ► 1

Management Model of Foundations & Endowments The management model of a foundation endowment ranks

Management Model of Foundations & Endowments The management model of a foundation endowment ranks with asset class allocation as a key determinant of long-term performance. Securities Selection Manager Selection Asset Class Allocation Endowment Management Model Source: The Commonwealth Funds and Adapted from J. E. Craig, Jr. , “Treasurer’s Report, “ The Commonwealth Fund 1994 Annual Report. Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission. | ► 2

Complexity of Investing Over Time Inflation Risk Time Athena Capital Advisors LLC Proprietary and

Complexity of Investing Over Time Inflation Risk Time Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission. | ► 3

Complexity of Investing Over Time Inflation Risk Liquidity Risk Inflation Risk Company Risk Time

Complexity of Investing Over Time Inflation Risk Liquidity Risk Inflation Risk Company Risk Time Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission. | ► 4

Harvard Allocation Over Time Domestic Equities Foreign Equities Emerging Markets Private Equities Total Equity

Harvard Allocation Over Time Domestic Equities Foreign Equities Emerging Markets Private Equities Total Equity Absolute Return Commodities Real Estate Total Real Assets Domestic Bonds Foreign Bonds High Yield Inflation-Indexed Bonds Total Fixed Income Cash TOTAL Harvard Allocation 1980 1995 66% 38% 15% 12% 66% 70% 6% 7% 13% 34% 15% 2% 0% 34% 22% -5% 100% 2005 15% 10% 5% 13% 43% 12% 13% 10% 23% 11% 5% 5% 6% 27% -5% 100% 2012 12% 12% 48% 16% 14% 9% 23% 4% 3% 2% 4% 13% 0% 100% Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission. Please see important disclosures and disclaimers at the end of this presentation. | ► 5

Complexity of Investing Over Time Inflation Risk Liquidity Risk Inflation Risk Company Risk Time

Complexity of Investing Over Time Inflation Risk Liquidity Risk Inflation Risk Company Risk Time Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission. | ► 6

Complexity of Investing Over Time Geo-political Risk Liquidity Risk Inflation Risk Company Risk Time

Complexity of Investing Over Time Geo-political Risk Liquidity Risk Inflation Risk Company Risk Time Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission. | ► 7

Complexity of Investing Over Time Bonds U. S. Stocks Foreign Stocks Real Estate Currency

Complexity of Investing Over Time Bonds U. S. Stocks Foreign Stocks Real Estate Currency Risk Geo-political Risk Inflation Risk Liquidity Risk Inflation Risk Company Risk Time Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission. | ► 8

Complexity of Investing Over Time Bonds U. S. Stocks Foreign Stocks Real Estate Bonds

Complexity of Investing Over Time Bonds U. S. Stocks Foreign Stocks Real Estate Bonds Venture Capital U. S. Stocks Foreign Stocks Real Estate Currency Risk Geo-political Risk Inflation Risk Liquidity Risk Inflation Risk Company Risk Political Risk Currency Risk Geo-political Risk Liquidity Risk Inflation Risk Company Risk Leverage Risk Time Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission. | ► 9

Complexity of Investing Over Time Complexity Bonds U. S. Stocks Foreign Stocks Real Estate

Complexity of Investing Over Time Complexity Bonds U. S. Stocks Foreign Stocks Real Estate Hedge Funds Private Equity Venture Capital Bonds U. S. Stocks Foreign Stocks Real Estate Bonds Venture Capital U. S. Stocks Foreign Stocks Real Estate Currency Risk Geo-political Risk Inflation Risk Liquidity Risk Inflation Risk Company Risk Credit Risk Manager Risk Political Risk Currency Risk Geo-political Risk Liquidity Risk Inflation Risk Model Risk Company Risk Leverage Risk Political Risk Currency Risk Geo-political Risk Liquidity Risk Inflation Risk Company Risk Leverage Risk Time Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission. | ► 10

Endowment CIO Tenure and Pay University Harvard Yale Princeton Stanford MIT Columbia University of

Endowment CIO Tenure and Pay University Harvard Yale Princeton Stanford MIT Columbia University of Michigan U of Pennsylvania Notre Dame Duke Cornell Wellesley College Georgetown Wesleyan FY 2011 CIO Length of Compensation Endowment Time (years) of CIO $32 B 4. 5 $4 MM $19 B 27 $4 MM $17 B 17 $2 MM $16 B 6 $3 MM $9 B 6 $1 MM $8 B 10 $4 MM $8 B 13 $1 MM $7 B 8* $1 MM $6 B 23 $2 MM $6 B 5 $2 MM 5 B 2 $800 k $1 B 4 $570 k $1 B 2 $650 k $615 k 3 $500 k President’s Salary $875 k $2 MM $900 k $1 MM $2 MM $930 k $1 MM $475 k $700 k $600 k $565 k $1 MM $560 k *The CIO resigned in October 2012 and they are currently seeking a new CIO. | ► 11

Five Models of Investment Management 1. Solo Investment Committee Model 2. Investment Committee –

Five Models of Investment Management 1. Solo Investment Committee Model 2. Investment Committee – Investment Consultant Model 3. Investment Committee – Internal Financial Staff – Investment Consultant Model 4. Internal CIO 5. Outsourced CIO Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission. | ► 12

5 Tests: Real vs. False Outsourced CIO 1. Alignment 2. Acumen (really smart!) 3.

5 Tests: Real vs. False Outsourced CIO 1. Alignment 2. Acumen (really smart!) 3. Access to Special Investments 4. Real Results 5. Happy Real Clients Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission. | ► 13

Real vs. False Outsourced CIO Real CIO False CIO Alignment Fee based, Independent, Conflict

Real vs. False Outsourced CIO Real CIO False CIO Alignment Fee based, Independent, Conflict Free No independent, not fee based and sells their own products Acumen (really smart) Qualified staff, excellent analytics and risk management in their DNA Primarily marketing people, great for dinners and golf, trot out someone smart every now and then Access to Special Investments The firm is large enough to have access to the best and brightest managers, but nimble enough that they can provide access in a meaningful way Too small, too large or only offer access to their own proprietary products Real Results They have a track record that they will stand behind and slice and dice it any way you want No results to show, only proforma results to show or they have a track record but won’t show it because it is too complicated Happy Real Clients They have them! The firm has not been in business long enough to have referenceable clients Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission. | ► 14

Contact Information For further information, please contact: Athena Capital Advisors 55 Old Bedford Road,

Contact Information For further information, please contact: Athena Capital Advisors 55 Old Bedford Road, Suite 302 Lincoln, MA 01773 781. 274. 9300 www. athenacapital. com Athena Capital Advisors 767 Third Avenue, 36 th Floor New York, NY 10017 917. 414. 1512 www. athenacapital. com Lauren Casper [email protected] com Zung T. Nguyen [email protected] com Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission. Please see important disclosures and disclaimers at the end of this presentation. | ► 15

Disclosures and Disclaimers The summary description of Athena Capital and the information included herein,

Disclosures and Disclaimers The summary description of Athena Capital and the information included herein, and any other materials provided to you, are intended only for discussion purposes and are not intended as an offer to sell or a solicitation of an offer to buy with respect to the purchase or sale of any security and should not be relied upon by you in evaluating the merits of investing in any securities. These materials are not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use is contrary to local law or regulation. This summary is not intended to be complete, and material aspects of the descriptions contained herein may change at any time. The information herein is not intended to provide, and should not be relied upon for, accounting and legal or tax advice or investment recommendations. You should consult your tax, legal, accounting or other advisors about the matters discussed herein. Investing in financial markets involves a substantial degree of risk. There can be no assurance that the investment objectives described herein will be achieved. Investment losses may occur, and investors could lose some or all of their investment. Nothing herein is intended to imply that investments of this type may be considered "conservative, " "safe, " "risk free" or "risk averse. " No regulatory authority has passed upon or endorsed this summary or the merits of this information. The examples of investments included in this summary have been provided for discussion purposes only and are no guarantee of future results or that such investment opportunities will become available. Distribution of this information to any person other than the person to whom this information was originally delivered and to such person's advisors is unauthorized, and any reproduction of these materials, in whole or in part, or the disclosure of any of the contents, without the prior consent of Athena Capital in each such instance is prohibited. Circular 230 Disclosure: To ensure compliance with Treasury Department regulations, we inform you that, unless specifically indicated otherwise, any tax advice contained herein was not intended or written to be used and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or applicable state or local tax provisions, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Athena Capital Advisors does not provide legal advice and the information contained herein should only be used in consultation with your legal, accounting, and tax advisors. Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission. Please see important disclosures and disclaimers at the end of this presentation. | ► 16