Organization

A large public university foundation in the Midwest with a fast-growing endowment had a desire to grow and maintain a large private equity investment program to enhance the endowment’s returns. The foundation began investing in private equity in the early 2000s and, over time, had grown comfortable with private equity as an asset class that could enhance the endowment’s risk-adjusted returns.

Who We Serve Investment Committee Connection Tools and resources to improve efficiencies and governance; key factors to achieving your mission

Challenge

Over the last 10 years, the foundation’s endowment has more than doubled in size through a strong capital campaign. There is also an expectation for strong future donor support to grow its capital base. Over time, the investment committee of the foundation had grown frustrated because it was unable to create a perpetual plan to allow the endowment to grow and maintain its intended allocation to private equity. This inability was due to a number of things:

  1. Uncertainty around the cash flows associated with the large number of private equity funds it had already invested in over the years
  2. How much it should commit in the future to private equity funds
  3. The potential for variability around donor gifts
  4. The fluctuations in values of the non-private equity portion of the investment portfolio.

Solution

The investment committee and staff of the foundation worked with SEI as its OCIO to create a perpetual private equity funding plan which would allow it to grow and maintain its allocation to private equity despite the uncertainty of the multiple factors described above.  SEI constructed an expectation of future cash flows and net asset values of the foundation’s current private equity fund investments. It created an overall asset allocation that provided the highest likelihood the endowment’s investment portfolio would achieve its targeted long-term return while maintaining its necessary liquidity and avoiding significant drawdown risk associated with negative economic outcomes.

Providing the highest likelihood the endowment’s investment portfolio can achieve its long-term return and maintain liquidity

SEI created a future private equity commitment schedule diversified by vintage year, sub-strategy and underlying fund. That gave the investment committee and staff at the foundation assurance that the endowment’s allocation to private equity would remain in a band the committee and staff would be comfortable with. It ensured the endowment could be used to help the foundation meets its goals and objectives.

Conclusion

The plan for future private equity commitments allows the endowment to maintain a private equity program within the comfort levels of the investment committee and staff while eliminating some of the uncertainty around cash flows and variability in donor gifts and the valuation of the other portions of the investment portfolio.

Download the Case Study

Legal Note

This case study describes the attributes of a specific client that SEI has determined is comparable based on objective criteria, including organizational goals, asset size and industry sector. Any discussion of specific asset allocations is intended to help clients understand SEI’s customized investment approach, and should not be regarded as a recommendation. Information concerning SEI’s recommendations over the last year is available on request.

This information is provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company. The material included herein is based on the views of SIMC. Statements that are not factual in nature, including opinions, projections and estimates, assume certain economic conditions and industry developments and constitute only current opinions that are subject to change without notice. Nothing herein is intended to be a forecast of future events, or a guarantee of future results. This presentation should not be relied upon by the reader as research or investment advice (unless SIMC has otherwise separately entered into a written agreement for the provision of investment advice).

There are risks involved with investing including loss of principal. There is no assurance that the objectives of any strategy or fund will be achieved or will be successful. No investment strategy, including diversification, can protect against market risk or loss. Current and future portfolio holdings are subject to risk. Past performance does not guarantee future results.

For those SEI funds which employ a “manager of managers” structure, SIMC is responsible for overseeing the sub-advisers and recommending their hiring, termination, and replacement. References to specific securities, if any, are provided solely to illustrate SIMC’s investment advisory services and do not constitute an offer or recommendation to buy, sell or hold such securities.

There is no assurance that the asset allocation set forth above was actually accepted and implemented by the client. Past performance is not indicative of future results. You should not assume that future recommendations will be as profitable or will equal the performance of past recommendations. The expected return, standard deviation and duration do not reflect actual investment results and are not guarantees of future results. This information reflects projections based on SEI’s capital market assumptions. See the Important Information slides for additional information.