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
Simulated $100 Million Portfolio
with 5% Annual Spending
Portfolio Value ($ millions)
180
160
Expected Porfolio Return of 7.6%
Expected Porfolio Return of 5.6%
140
120
100
80
60
40
20
0
0
5
10
15
Year
10,000 simulations, median case.
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express written permission.
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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.
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express written permission.
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►2
Complexity
Complexity of Investing Over Time
Bonds
Inflation Risk
Time
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express written permission.
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►3
Complexity
Complexity of Investing Over Time
Bonds
U.S. Stocks
Bonds
Inflation Risk Liquidity Risk
Inflation Risk
Company Risk
Time
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►4
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%
5%
12%
66%
70%
0%
6%
7%
13%
34%
15%
5%
2%
0%
34%
22%
-5%
100%
100%
2005
15%
10%
5%
13%
43%
12%
13%
10%
23%
11%
5%
5%
6%
27%
-5%
100%
2012
12%
12%
12%
12%
48%
16%
14%
9%
23%
4%
3%
2%
4%
13%
0%
100%
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disclosures and disclaimers at the end of this presentation.
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►5
Complexity
Complexity of Investing Over Time
Bonds
U.S. Stocks
Bonds
Inflation Risk Liquidity Risk
Inflation Risk
Company Risk
Time
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express written permission.
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►6
Complexity
Complexity of Investing Over Time
Bonds
Bonds
Bonds
U.S. Stocks U.S. Stocks
Foreign Stocks
Geo-political Risk
Liquidity
Risk
Inflation Risk
Liquidity Risk
Inflation Risk Inflation Risk
Company Risk Company Risk
Time
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express written permission.
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►7
Complexity
Complexity of Investing Over Time
Bonds
Bonds
Bonds
U.S. Stocks U.S. Stocks
Foreign Stocks
Bonds
U.S. Stocks
Foreign Stocks
Real Estate
Currency Risk
Geo-political Risk
Geo-political Risk
Inflation Risk Liquidity Risk Liquidity Risk
Liquidity Risk
Inflation Risk Inflation Risk
Inflation Risk
Company Risk Company Risk
Company Risk
Time
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express written permission.
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►8
Complexity
Complexity of Investing Over Time
Bonds
Bonds
Bonds
U.S. Stocks U.S. Stocks
Foreign Stocks
Bonds
U.S. Stocks
Foreign Stocks
Real Estate
Bonds Venture Capital
U.S. Stocks
Foreign Stocks
Real Estate
Currency Risk
Geo-political Risk
Geo-political Risk
Inflation Risk Liquidity Risk Liquidity Risk
Liquidity Risk
Inflation Risk Inflation Risk
Inflation Risk
Company Risk Company Risk
Company Risk
Political Risk
Currency Risk
Geo-political Risk
Liquidity Risk
Inflation Risk
Company Risk
Leverage Risk
Time
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express written permission.
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►9
Complexity of Investing Over Time
Complexity
Bonds
U.S. Stocks
Foreign Stocks
Real Estate
Hedge Funds
Private Equity
Venture Capital
Bonds
Bonds
Bonds
U.S. Stocks U.S. Stocks
Foreign Stocks
Bonds
U.S. Stocks
Foreign Stocks
Real Estate
Bonds Venture Capital
U.S. Stocks
Foreign Stocks
Real Estate
Currency Risk
Geo-political Risk
Geo-political Risk
Inflation Risk Liquidity Risk Liquidity Risk
Liquidity Risk
Inflation Risk Inflation Risk
Inflation Risk
Company Risk Company 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
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express written permission.
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► 10
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
5B
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
$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.
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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
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► 12
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
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► 13
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
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express written permission.
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► 14
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, 36th Floor
New York, NY 10017
917.414.1512
www.athenacapital.com
Lauren Casper
lcasper@athenacapital.com
Zung T. Nguyen
znguyen@athenacapital.com
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Please see important disclosures and disclaimers at the end of this presentation.
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► 15
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.
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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.
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