Taft Weighs Brazilian Equity
Published October 1, 2010 Institutional Investor’s Foundation & Endowment Money Management
The Taft School's $180 million endowment may add Brazilian equity within the next eight months as it seeks to invest in the fastest growing stable economies in the world. The Watertown, Conn., boarding school, which outsources the oversight of its endowment to New Providence Asset Management, has not decided on the size or details of the addition, said Lance Odden, who handles business development for New Providence. He had served as Taft's headmaster from 1972 to 2001.


Taft's endowment returned 15.5% for the fiscal year ending June 30 due to moves the fund made following the market upheaval in the fall of 2008. The school began increasing its equity exposure in January of 2009 with a focus on the U.S., including distressed. Earlier this year, it began adding emerging markets, particularly China and India, while limiting positions in MSCI, EAFE, and Japan.


"At the end of 2007, seeing that markets were overleveraged, we wanted to increase liquidity, so we reduced long-only equity, and increased our hedging investments," said Rafe de la Gueronniere, managing partner at outsourced cio New Providence, which handles the school's account. "And we sought out managers who had performed particularly well in past bear markets. We also increased fixed income, especially in government-guaranteed securities." He declined to name managers.

 
Performance Taft has outperformed the broad equity markets continuously since 1999, averaging over 6% per annum, net of all fees. Also noteworthy is the school's performance over the past three years. Taft was down -12.5% for fiscal 2009, compared to -22.5% for the average endowment of its size. For the calendar year 2009, Taft was up 26% versus its benchmark, which was up 18.1%.


"Asset allocation and manager selection are the keys to performance," de la Gueronniere explained. Taft's fund currently allocates 77% of its assets in a combination of long-only domestic and international equity, long, short and distressed hedge funds, and private equity. It invests 10% in fixed income and alternatives and the rest in cash and treasury bills.
The Taft endowment has avoided going long in both real estate and commodities and has remained highly liquid. "We always hold at least two years of draw in fixed income or cash," de la Gueronniere said. "As a result, we have never had to sell equity in a down market."

Manager Selection The school has gravitated toward managers that are flexible and opportunistic. "We favor value investors who utilize a bottom-up research approach and are also strategic buyers who take a macro, top-down view," explained Andrew Vogelstein, managing partner at New Providence. "We greatly favor managers who have their own money invested alongside their clients. It proves that they're committed," he added. Taft avoids managers that are overly diversified or lack transparency.

Taft uses 25 managers for its portfolio. "It is a manageable number, neither too concentrated, nor too diverse," said Vogelstein. Firms are sourced using networking, leveraging relationships with existing managers and the investment committee.


Origins John Vogelstein and de la Gueronniere purchased New Providence in 2003. They both previously served on Taft's investment committee and were responsible for managing the school's endowment from 1999 to 2004, prior to their firm being hired for an outsourced cio assignment. The firm's other endowment and foundation clients include The John A. Hartford Foundation, Germantown Academy, The Osborn Retirement Community, HYPERLINK "http://www.foundationendowment.com/Search.aspx?SearchStr=Blythedale Children" and Nightingale-Bamford School of New York.