Utmost Responsibility with High Stakes
An appointed faculty counselor serves each committee of the Emory University Board of Trustees. Last year, I was fortunate to be invited to serve as a faculty counselor to the Investment Committee. While I was exhilarated by the appointment, I felt sure there must be some mistake or catch. I am a cardiologist and a clinical researcher; I know very little about investments. Nonetheless, I determined to do my best, and I also received some expert advice from a senior member of the Emory Healthcare leadership team. When I told him about my angst, he leaned over and gave sage advice: “I recommend that you just listen and don’t talk.” Having been on the committee for some time now, I can attest that this approach works! I am honored to present to the Emory faculty, the community that I serve, a brief report regarding the investment committee.
To begin, a little historical context. In July 1914, Asa Candler donated $1 million and later gave another gift of 75 acres of land that led to the establishment of the university. Over time, additional gifts of land and buildings from the Candler family and others enabled the university to expand. By 1926, the endowment was valued at $2.9 million, and it continued to grow to $96.6 million by 1965. In 1979, Robert and George Woodruff transferred the Emily and Ernest Woodruff Fund to the university. At that time valued at $105 million, the fund was the largest single gift ever donated to an educational institution in the United States. Today, the endowment is part of a diversified, risk-controlled portfolio of long-term investments worth more than $5 billion.
Emory’s investment mission is to maximize the probability that the endowment returns over the long term are sufficient to maintain purchasing power after spending and inflation, and to add purchasing power via excess returns. The investment philosophy encompasses the following:
- Teams markedly outperform individuals over time. Collaboration is imperative.
- Intellectual curiosity, a passion for the work, and the need to dig deep for answers is part of the DNA of each team member.
- A balance between patient investing and a sense of urgency is required.
- Price matters. We are value investors.
- Do not be overconfident about investing or driven by concern over missing an opportunity. Follow a sound and disciplined process.
C. Robert Henrikson, former president and chief executive officer of MetLife and Metropolitan Life Insurance Company, chairs the committee. Other members of the committee are also highly accomplished businessmen with vast experience in managing leading companies in various industries. They bring diverse experience to the committee that Emory is very fortunate to have.
The Emory Office of Investment Management is led by Mary Cahill, vice president of investments and chief investment officer, who oversees investments of all endowment, trust, operating, and employee benefit funds for the university. Prior to joining Emory, Ms. Cahill was the deputy chief investment officer of Xerox Corporation, where she managed assets in excess of $12 billion. She has thirty years of investment experience. Her team includes operations managers, investment analysts, risk analysts, and project officers. They work in collaboration with investment managers and advisory firms from across the globe that provide investment expertise specific to their local markets.
In 2012, Emory’s total endowment was $5.46 billion, ranking it sixteenth among all universities.
The university’s investment portfolio structure is designed to optimize value based on the foundation of a policy asset allocation. In accordance with investment best practices, assets are pooled to optimize investment growth and reduce volatility. Emory Investment Management uses a thoughtful, results-driven approach to investing to produce value and control risk. Partnerships with skilled investment management firms across the globe and in diversified markets are structured to add value or preserve capital in a variety of market environments. The team manages more than one hundred portfolio manager relationships.
The Investment Committee of the Board of Trustees approves asset allocation policy. The committee has approved an approach that structures the investment portfolio in a balanced manner to reduce exposure and risk in any particular sector or market, while enhancing performance growth. Asset allocation is based on long-term studies conducted internally. Policy benchmarks are set based on target allocations, and Emory Investment Management manages the process whereby the portfolio is rebalanced to policy targets. The team is also permitted to make tactical shifts in the actual portfolio weights in an attempt to capitalize on shorter-term investment opportunities. In order to meet today’s needs while protecting tomorrow’s resources, the Board of Trustees establishes and oversees a spending rate formula that defines how distributions are made. The objective of the spending policy is to strike an appropriate balance among the following objectives:
- To ensure the purchasing power of the revenue stream;
- To ensure that the endowment assets do not decline over the long term;
- To provide current programs with a generally predictable and stable stream of revenue;
- To reduce the lagging effects of market variability.
The university’s current spending formula applies a spending rate (4.75 percent) to a twelve-month market value average of endowment assets. The Board of Trustees Finance Committee reviews the spending formula annually. This spending policy is similar to those at most peer institutions.
The committee meets quarterly. Under the leadership of Mr. Henrikson, Ms. Cahill conducts the proceedings, which are attended by board members, senior investment office staff, and other members of the Emory leadership team. The meetings last about three hours and consist of reviewing the concerns and opportunities in the current environment, and both global and local financial conditions. This discussion is followed by a presentation on the investment portfolio’s performance. The attendees robustly challenge and discuss both the broader (global and philosophical) and the granular investment decisions and results.
There are few responsibilities at a university more important than managing its endowment. Emory is fortunate to have one of the larger endowments among American universities. In 2012, Emory’s total endowment was $5.46 billion, ranking it sixteenth among all universities and thirteenth excluding endowments that are system-wide for state universities encompassing multiple campuses. After getting to know the committee members and the organization, I can comfortably attest that Emory is in good hands. The committee members and staff take their responsibility very seriously and are genuinely concerned about the university and its faculty’s needs. Mr. Henrikson, despite his extraordinarily busy schedule, invited me to join him for a breakfast while he was in Atlanta to facilitate an introduction of the goals and functioning of the investment committee, as well as providing me the opportunity to air any faculty issues. Ms. Cahill, similarly, invited me to visit the investment office to meet her team members and provide me an overview. This certainly shows the interest that both the trustees and the investment office have for faculty concerns.
The investment and protection of Emory’s endowment to ensure its sustainability and expansion of the university mission is a daunting task—especially in the current global financial environment. On behalf of the Emory faculty, I am honored to serve on this committee and feel we are fortunate to have not only this endowment but the extraordinary team that works tirelessly to protect it and make its best use in the university and faculty’s interest.