Emory Report
November 1, 2004
Volume 57, Number 10


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November 1, 2004
Invested interest

BY Eric Rangus

The Emory community encompasses more than just the leafy main campus, congested Clifton corridor, faraway Oxford, or even satellites like the Carter Center and Crawford Long Hospital.

Emory also has a place in trendy Buckhead. Not every window from every Emory office looks out on students tossing a Frisbee on green grass. Views of skyscrapers and harried executives hustling double-time between afternoon meetings have their place, as well.

“My first preference was to have offices on campus, in the thick of the Emory community, but there was just no room,” said Mary Cahill, vice president of investments, chief investment officer and leader of the Emory Investment Management (EIM) group. The group, which Cahill manages, is charged with overseeing the University’s financial investments, primarily its $4 billion endowment, the ninth largest in the country.

“My area of responsibility is so very different and so very specialized that sometimes, yes, it feels like we’re a bit separate from the University, but I work hard to keep the team involved,” said Cahill, who meets regularly with the Board of Trustees’ investment committee, which oversees the work of her group. Understanding the University’s vision and the developing strategic plan are important aspects in establishing the optimal investment program, she said.

After she was hired in January 2001 Cahill created the EIM group, which had a variety of goals ranging from strategically and thoughtfully diversifying Emory’s portfolio to reviewing risk management procedures and studying asset allocations. Before her arrival, investment research had been outsourced; she brought it back inside. She purchased new computers and added a central database and information tracking systems. She grew the investment team from six to 12 positions and also cultivates internal talent by initiating an internship program in partnership with the Goizueta Business School.

Cahill, holder of an MBA degree and a certified financial analyst (CFA), has more than 25 years’ experience in the management of institutional assets; prior to coming to the University, she managed Xerox’s pension plan. Emory is Cahill’s first position at a nonprofit institution.

“Endowments are longer term in nature than pension assets,” Cahill said. “We’re not as concerned with quarterly earnings as a corporation might be. There are other pressures in managing Emory’s unique mix. Because of the long-term nature of the endowment, we have the opportunity to invest in some interesting areas.”

Such investments have the potential to add significant value, but require an initial investment in people and infrastructure. “We have made those vital investments and are poised for upward trajectory and continued growth,” Cahill said, adding that her team and Board of Trustees’ investment committee continue to move the endowment into nontraditional investments with long-term objectives.

Diversifying Emory’s portfolio has been a focus of the EIM group and the investment committee for past three years. Cahill and her team created an investment manager pool and transferred all assets actively managed by both internal staff and external firms into it. Diversifying this pool meant increasing the number of external firms that Emory uses to manage its assets while decreasing investment manager concentrations. The net result is more value to our portfolios.

While Cahill admits the perception of Emory as closely aligned with The Coca-Cola Company is accurate (about 30 percent of the endowment is Coca-Cola stock; no other single company has a profile as high as 1 percent), that profile is changing.

“Emory has benefited extraordinarily from the generosity of The Coca-Cola Company, our endowment has grown greatly from gifts of Coca-Cola stock,” Cahill said. “We should never lose sight of that, but we need to broaden our outlook as we plan for the future. Part of our job is to implement stock diversification programs set by the investment committee, but most of what we do is ensure the investment manager pool, which does not hold Coca-Cola stock, is sufficiently diversified.”

While the endowment’s value has rebounded in the past year, it lost around $300 million in value in FY02-03. Tumultuous global financial markets had something to do with that, but some of the country’s top 10 endowments saw gains. Part of the explanation again, has to do with overall diversification.

“Our diversification into other asset classes is [still] not as mature as the other schools,” Cahill said. “They were earning money on investments they made in 1995 that paid out earnings in 2003. We did not make that 1995 investments and, therefore, did not benefit from the same level of earnings. So, as our portfolio matures, we will look more and more like other universities, but it requires time.”

In Cahill’s eyes, the recent drops in Emory’s endowment value are not uncommon and certainly not crises. To prevent further drops, though, the EIM group has put a lot of effort into risk management and diversification.

Things are looking up. FY04 ended Aug. 31 and while the audited calculations are not yet in, Cahill said that while Emory may not move up on its peer list, the endowment’s value should once again be over $4 billion.

Emory’s endowment is a complicated creature. For one thing, it is not a $4 billion lump sum. It is separated into what Cahill terms “buckets of money” (some organizations use the phrase “pots of money,” but $4 billion requires larger receptacles). Some donors specify exactly what their money must be used for. A portion of the Coca-Cola stock, for instance, is earmarked for the Woodruff Health Sciences Center and cannot be used for other purposes or investments. The Goizueta Business School has its funds, also the School of Law, and so on.

The money that is not restricted is free to be invested as the University sees fit, and there are strict limitations on any appreciation from Emory’s investments. From there, the money is broken down further. Those asset classes include line items such as U.S. bonds, real estate or natural resources, and each asset class has its own group of investment managers to guide it.

“Once we had the people and systems in place to analyze the endowment, it had a significant growth tilt,” Cahill said. “We neutralized that tilt, held on and lost some money. Now we have a portfolio I’m much more comfortable with. It’s outperforming its benchmark, and the investment management pool—the part we actively manage—is looking very good for fiscal year 2004. The overall outlook for Emory and the endowment is excellent. With leadership from the Board of Trustees and adminsitration, we are poised for long-term growth.”