Built to be a Chief Investment Officer: A History of Serving Institutions

April 24th, 2018

The investment landscape is increasingly complex. In recent decades, the search for alpha—or excess investment returns—and  the need to mitigate downside risk have fueled demand for more complex and non-traditional strategies such as private equity; direct lending; real assets; and other return-enhancing and volatility-dampening strategies. At the same time, the post-Great Recession economic environment and unprecedented central bank stimulus have become more difficult to navigate.

These concerns, along with a desire for robust risk controls, fee transparency and the flexibility to implement timely tactical investment decisions, are driving more foundations, endowments and nonprofit institutions to partner with an Outsourced Chief Investment Officer (OCIO). The benefits are compelling. Trustees of endowed charities can delegate investment discretion, and the corresponding fiduciary liability, to a trusted advisor who is more deeply resourced, nimble and experienced managing asset pools with perpetual time horizons. Similarly, investment committees who engage an OCIO to take over the day-to-day management of the endowment pool are better able to focus on their organization’s strategy and mission.

As the trend of moving away from in-house investment management and the investment committee-consultant model continues, the number and the size of OCIO mandates are accelerating. Endowed charities like George Washington University and American Red Cross are joining the ranks of billion- dollar endowments such as Smith College, University of Colorado and Houston Endowment, in embracing outsourced investment management.

OCIO SINCE 1956

It is not an exaggeration to say that Glenmede was one of the nation’s first OCIO providers, having been founded in 1956 to manage the assets of The Pew Trusts. Today, our Endowment & Foundation group encompasses nearly $9 billion across more than 220 nonprofit and charitable institutions. As an independent, privately owned firm with $40.1 billion of total assets under management, Glenmede can ensure the organizational stability and focus institutional clients demand of an OCIO. Our customized investment portfolios and specially tailored, high-touch service contribute to a 98 percent client retention rate.

As an OCIO, Glenmede assumes responsibility for manager and strategy selection and tactical asset allocation, and is accountable for performance. All investment decisions are made in accordance with a client’s investment policy statement that codifies the guidelines for management of the assets. Within this structure, Glenmede can make tactical portfolio moves without convening a client’s investment committee, and members find this allows them to be more strategic and focused on achieving their long-term objectives.

THE TEAM

Glenmede’s Endowment & Foundation Investment team is led by Stephen Lehman, CFA, Chief Investment Officer for Endowments & Foundations, and the Director of Investments for The Pew Trusts—and a former senior director of investments for Columbia University’s endowment fund. The team includes a group of highly experienced endowment and foundation Portfolio Managers led by Adam Conish, CFA, an advisory and administration group led by Nina Cohen, and a wide range of specialists.

Glenmede’s OCIO clients have access to a deep bench of resources, including: the Manager Research group, who performs ongoing due diligence on public market investment managers with demonstrated investment processes and sustained risk-adjusted alphas; the Private Investment Research group, who identifies investment opportunities unavailable in the public markets; the Quantitative Research group, who provides advanced portfolio analytics; and the Investment Strategy group, whose proprietary capital markets research and modeling inform the firm’s decision-making about where the best opportunities to add value exist in today’s global markets.

OCIO IN PRACTICE

Glenmede’s Endowment & Foundation Portfolio Management group acts as a client’s internal investment staff, with a team member appointed as the Chief Investment Officer of each relationship. The Portfolio Manager works with the investment committee to draft the investment policy statement that sets the investment objectives for the fund, as well as the guidelines that define how Glenmede will act as OCIO.

Once the portfolio is in place, the Portfolio Manager will meet periodically with a client’s investment committee to review performance, discuss manager and strategy shifts, provide updates on our outlook for the markets and economy, and assess whether policy changes are warranted.

CONSISTENT INVESTMENT PHILOSOPHY, DISCIPLINED PROCESS

Our investment philosophy and process is designed to construct growth-oriented portfolios that preserve principal in times of market stress, achieve capital appreciation, manage risk and liquidity, and generate a total return sufficient to meet long-term spending requirements. In quantitative terms, our goal is not just to maximize returns, but also to maximize the portfolio’s Sharpe Ratio—the ratio of return to risk.

We achieve this goal through a highly disciplined two-part investment process. First, our approach to asset allocation utilizes the diversification benefits of less-correlated assets and strategies to minimize the risk of permanent loss of capital, and takes advantage of market volatility and mean reversion to rebalance and add value.

Second, we generate favorable risk-adjusted excess returns by identifying managers with a robust and repeatable investment process, who proactively allocate to mispriced assets. We seek to take advantage of opportunities in complex and less efficient public and private markets, minimizing headwinds—including high fees and misalignment of manager incentives—and selectively utilizing low-cost passive strategies in more efficient markets.

INDUSTRY-LEADING IMPACT INVESTING SOLUTIONS

More endowed charities are seeking to align their investment portfolios with their organizational mission and values. Glenmede has been at the forefront of designing impact investment solutions for over 15 years.

Casey Clark, CFA, leads Glenmede’s impact investing efforts as Director of Sustainable & Impact Investing, and his team has been bolstered by recent additions such as Jennifer Wong, CFA, who focuses on private investment strategies. An active thought leader in the impact investing community, we recently sponsored ImpactivateSM, an independent website featuring articles from journalists and thought leaders on new ideas and developments in the field.

 COMPREHENSIVE ADVICE AND ADMINISTRATION

In addition to institutional investment strategy and implementation, our OCIO team provides clients with custom performance and benchmark reporting; timely proprietary research and thought leadership, including market commentary and insights; coordination with outside advisors, such as auditors; board and staff education; foundation grants management; and asset custody. We also advise clients on liquidity forecasts and total risk management.

Glenmede’s Relationship Managers will work closely with a fund’s staff to ensure an exceptional level of administrative support. For clients who desire more expansive guidance, our Advisory and Administration group provides a deeper level of advice on topics ranging from charitable gift planning and philanthropic strategy development to board succession and transition, and governance best practices.

2017 Annual Review Disclosure: Glenmede’s Annual Review is intended to be an unconstrained review of matters of possible interest to the Company’s clients and friends and is not intended as personalized investment advice. Advice is provided in light of a client’s applicable circumstances and may differ substantially from this presentation. Glenmede’s affiliate, Glenmede Investment Management LP, may conduct certain research and offer products discussed herein. Opinions or projections herein are based on information available at the time of publication and may change thereafter. Information gathered from other sources is assumed to be reliable, but accuracy is not guaranteed. Outcomes (including performance) may differ materially from expectations herein due to various risks and uncertainties. Any reference to risk management or risk control does not imply that risk can be eliminated. All investments have risk. Clients are encouraged to discuss the applicability of any matter discussed herein with their Glenmede representative. Nothing herein is intended as legal or federal tax advice.