Investment Management Seminar Finance 4820 Chris Bittman Partner – Perella Weinberg Partners

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Investment Management SeminarFinance 4820

Chris BittmanPartner – Perella Weinberg Partners

Chief Investment Manager - University of Colorado FoundationMarch 17, 2011

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Overview

1. CU Endowment structure, asset classes and performance

2. Current Investment Themes

3. Intermediate and long term drivers

4. Investment Due Diligence and Monitoring

Source of data: BNY Mellon.

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CU Endowment Investment Overview

Endowment is broadly diversified by geography, asset class and style.

Investment Policy Committee sets Policy Index (benchmark) and general policies – asset class ranges/targets, restricted investments and time horizon.

Daily oversight and management by outsourced investment staff.

Policy Index:

• 40% - US Equities

• 40% - Non-US Equities

• 20% - Fixed Income

We have outperformed our benchmark and the broad markets substantially for the trailing 3, 5, 7 and 10 year periods with less risk than either.

Have also outperformed 92% of our peers for the trailing 5 years.

Source of data: BNY Mellon.

• Investment Policy Committee provides fiduciary oversight and determines investment policies.

• Chief Investment Manager and Portfolio Management staff are responsible for manager/security selection and asset allocation within ranges.

• Investment function outsourced to existing staff and outside firm in 7-09 as a way to increase resources, contain costs and continue strong long-term performance. This is a common trend.

• Transition was based on a 3 year study of best practices in endowment investment management and involved Directors, outside legal counsel and University staff.

• Guiding principles for decision by Board of Directors were:

• Increase resources and risk management.• Contain costs.• Meet all fiduciary responsibilities in making the decision and monitoring performance.• Maintain continuity of investment staff that had created the long-term performance record.

CU Endowment Investment Management Structure

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Endowment Asset Allocation as of 1-31-11

Range Target 1-31-11

80% Equity-Like:Global Public Equity 20% to 70% 40% 37.0%

Domestic 15.8%

International 21.2%

Global Private Capital 10% to 30% 20% 24.9%

Hedge Funds 10% to 35% 20% 21.2%

83.1%

20% Fixed Income-Like:Fixed Inc. & Cash 5% to 20% 10% 9.9%

Real Assets 5% to 20% 10% 7.0%

16.9%

Total 100%

Source of data: BNY Mellon.

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Long Term Investment Pool performance as of January 31, 2011

Latest Latest1 Year 3 Years 5 Years

Benchmarks:

Russell 3000 23.95% 0.77% 2.51%

MSCI EAFE 15.38% -3.21% 1.72%

Barclays Capital Agg. Bond 5.06% 5.36% 5.82%.

LTIP 14.40% 1.35% 5.96%

Policy Index 17.06% -2.93% 2.91%

Notes: Policy Index is 40% Russell 3000, 40% MSCI EAFE, 20% Barclays Capital Agg. Bond Index. From the fund’s inception to 6-30-08, the Policy Index was 50% Russell 3000, 20% MSCI EAFE, 30% LB Agg. Bond Index. Source of data: BNY Mellon

Long Term Investment Pool has outperformed with less risk than Policy Index or S&P 500 - Five Years Ending December 31, 2010

Standard Deviations:LTIP 12.00% Policy Index 16.95%Domestic Equity 19.57% Russell 3000 19.72%International Equity 23.92% MSCI EAFE Net 24.00%Hedged Equity 11.04% BC Aggregate 3.53%Private Capital 9.28% S&P 500 19.16%Real Assets 10.42% 3 Mo T Bills 1.08%Total Bonds/ Cash 5.28%

Sharpe Ratios:LTIP 0.52 Policy Index 0.18Domestic Equity 0.22 Russell 3000 0.11International Equity 0.24 MSCI EAFE Net 0.09Hedged Equity 0.63 BC Aggregate 1.61Private Capital 0.84 S&P 500 0.11Real Assets 1.19 3 Mo T Bills 0.00Total Bonds/ Cash 1.28

Source of data: Monticello Associates7

Outperformed 92% of Peers over the last 5 years ending 12-31-10

Rank 8

Source of data: BNY Mellon and Monticello Associates. Ranking is from the Wilshire Cooperative Database of foundations/endowments, municipality and corporate pension plans with a total return mandate. Universe is approximately 1,800 plans representing $604 billion in assets.

Rank 50

Rank 83

Latest 5 Years

CU Foundation LTIP 6.38%

Median Fund 4.39%

CUF Policy Index 3.13%

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Long term performance is compelling

Cumulative performance since 10-1-04 staff inception to 12-31-10:

• LTIP up 64.0%

• Policy Index up 34.7%

• S&P 500 up 28.3%

In other words . . .

A $100 investment in the LTIP made on 10-1-04 would have grown to $163.96 by 12-31-10.

A similar $100 investment made in the S&P 500 on the same day would have grown to $128.33.

Source of data: BNY Mellon.

Near -Term Tactical Drivers are powerful shorter- term factors that are expected to influence asset returns.

Governments taking disparate policy actions. Currency manipulation and rising protectionist sentiments may become headwinds to global growth.

U.S. housing market affordability is attractive, but valuations artificially “buoyed” through government intervention and foreclosure moratoriums.

  Consumer deleveraging is keeping a

lid on inflation. Disinflationary pressures are likely to remain in place through 2011 with the exception of food and energy inflation in emerging markets.

Extension of Bush tax cuts has materially increased consumer confidence in the near-term.

Access to credit markets improving materially.

Many commodities are in a secular bull market, and some may have reached an inflection point in the near term.

Sovereign debt may overwhelm some Euro-zone member states in 2011. Greece default risk increases in 2011. U.S. debt situation also unfavorable.

Geopolitical crises are always a risk. Watch Korean Peninsula and North Africa developments carefully.

Municipalities and regional governments face extreme financial difficulties from elevated debt levels and pension promises. Increased austerity measures are critical, but may bring long-term pain in terms of growth reduction.

Outlook for Near-Term Tactical Drivers

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Outlook for Long-Term Strategic Drivers

• Vast differences in demographic factors may result in economic and political power shifts.

• Food supply and security constrained in some geographies.

• The U.S. dollar may lose its status as the sole world reserve currency.

• Wealth transfer to developing economies:

The rise of consumerism in developing economies – especially China and India. Infrastructure investments required to support growth.

• Political instability rises due to increasing income gaps and public/private sector clashes.

• Effects and opportunities from climate change and development of alternative energy sources.

• Breakthroughs in healthcare, biosciences/life sciences and genomics.

• Changes in consumption and savings trends in the U.S. are likely permanent.

Long-Term Strategic Drivers are powerful factors that will influence economic growth, political standing, and financial markets, but not necessarily in obvious ways.

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Potential U.S. game changers . . . Reasons to increase risk . . .

• Energy Policy – reducing dependence on foreign oil

• Tax code rewrite – to promote savings/investment

• Credible plan to reverse debt to GDP run up – rewrite social contracts

• Mortgage write-down by banks

• Legitimate back to work programs for under/unemployed

• Tort reform on healthcare

• Financial sector reforms with real teeth

• Change in immigration policy to increase working base

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• More important than ever to do your homework on new manager diligence and monitoring of existing investments.

• Due diligence is not a one time event.

• Can’t rely exclusively on third parties.

• Warning Signs . . .

• Quantitative and Qualitative assessments.

Due Diligence Issues

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“Oh Yeah? Well, my dad looted a bigger hedge fund than your dad.”

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Warning Signs in Manager Due Diligence

Volatility beyond expected range.

Significant staff turnover.

Too good to be true performance.

GP unwilling to show performance attribution – generated by longs/shorts.

Unknown auditor.

Little of manager’s personal assets in strategy.

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Quantitative Issues:

Fund volatility vs peer group, Distribution of returns, Drawdown analysis.

Breadth/repetition – Profit on many trades vs. a few large ones, Structural changes in market that impact future performance/volatility.

Strategy – vs. others, Investment decision making process, Sample trade examination, Typical and longest/shortest holding periods, Strategy specific risks.

Risk controls – Risk mgt process, Exposures, Hedging policies (interest rates, currency), Disaster recovery plan, Key-person incapacity.

Leverage – Approach/philosophy, Caps and average use, Highest/lowest amounts, Sources and number of providers.

Taxes

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Qualitative Issues:

Structure – founder still there?, new principals, legal structure of firm and affiliates.

Fund Terms – lockups, redemption policy, high water mark, hurdle rates, fees, minimum investments.

Comp – salary vs. bonus, distribution of carry.

Principals/Managers – full background checks, education verification, past trading history at other firms, are they responsive?, what % of time is spent running the portfolio vs. running the business?

On site visits – infrastructure, key personnel interviews, physical condition of key players, etc.

Fund reporting – how are trades tracked, verify info with prime broker and custodian.

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Qualitative Issues (continued):

Administration -3rd party admin?, how are NAV’s calculated, fees, expenses

Auditor – verify engagement and auditor experience, get audited financials, confirm data previously provided by fund like number of accounts, assets, performance, review changes to auditor.

Attorneys – verify engagement, get representation of no current investigations or litigation.

Investor profiles – number/type of LP’s., percent owned by largest LP’s, value of GP’s interest.

Softer issues – trustworthy, humility (willing to cut losses), healthy dose of paranoia, take losses personally.

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Best long term strategy? Taking advantage of other people’s panic . . .

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Contact info:

Chris Bittman, Partner - Perella Weinberg Partners

Chief Investment Manager - University of Colorado Foundation

7979 E. Tufts Ave., Suite 700

Denver, CO 80237

303-813-7910 (o)

303-484-5790 (fax)

[email protected]

Christopher L. Bittman, Partner - Perella Weinberg Partners

Mr. Bittman is a Partner of Perella Weinberg Partners (PWP) and CEO & CIO of their Agility Funds. PWP is an independent, privately-owned financial services firm that provides corporate advisory and asset management services to clients around the world. In this capacity he also serves as Chief Investment Manager of the University of Colorado Foundation.

Prior to joining PWP, Mr. Bittman was the Chief Investment Officer of the University of Colorado Foundation. Under his leadership the Foundation was named "Large Foundation of the Year" in 2007 by Institutional Investor's Foundation & Endowment Money Management magazine based on "superior investment performance, innovation and notable asset allocation moves."

Before being named the CU Foundation’s first CIO in 2004, he was the President and CEO of Jurika & Voyles - a California investment firm, where he was responsible for the management of over $5 billion for a broad variety of Fortune 500 corporations, public funds, foundations, endowments and individuals.

He began his career on Wall Street as the Western Regional Manager for Merrill Lynch's Business Financial Services Group and was the youngest Regional Manager in the group's history.

Mr. Bittman graduated from the University of Colorado in 1985 and served the institution as a volunteer for nearly 20 years as President of its Alumni Association as well as Trustee and Director of its Foundation and Chair of the Foundation's Investment Committee.

He sits as a guest lecturer on investment management at the University's Leeds School of Business as well serves as a member of the Advisory Board of the University’s Technology Transfer Office and is a member of the University’s Intercollegiate Athletics Task Force. He also chairs the investment committee of Colorado Public Television.

Chris Bittman biography

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