Endowments & Foundations 2011

DHR International

ENDOWMENTS & FOUNDATIONS
Table of Contents

Executive Summary Page 3
Page | 2
Surveyed Participants Page 4

Compensation Page 5

Asset Allocation Page 6

Endowment vs. Foundation Page 8

Performance Page 9

Trends Page 10

People Moves Page 11

Please address any questions or comments regarding this survey to:

Aneil Luhan
Vice President, Financial Services Practice
DHR International I Suite 2220 I 10 S. Riverside Plaza, Chicago, IL 60606
aluhan@dhrinternational.com I 312.782.1581

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DHR International

Executive Summary

DHR International periodically conducts a comprehensive survey and reports on compensation,
people moves and general sector trends. Our Financial Services Practice has focused on researching,
analyzing and reporting the quantifiable information pertaining to specialized sectors within the
market vertical. The primary purpose of the study is to provide greater insight into compensation Page | 3
trends at the Chief Investment Officer level, asset allocation developments, investment performance
and a summary of people moves across specialized sectors.

Data was compiled by using both primary and secondary sources. Primary sources included telephone
and face-to-face interviews with prominent investment professionals within each of the respective
organizations – Chief Investment Officers and Senior Portfolio Managers – as well as annual and
quarterly reports. Secondary sources include third-party databases and news sources from online
providers. Whilst endeavoring to provide a rigorous research process, complete sets of data could not
always be provided for each section given the confidential nature of the information being obtained.

DHR International began compiling real-time data in May 2011, making subsequent amendments as
changes to specific data points occurred, e.g. asset allocation or compensation changes. Fiscal Year is
factored into our results as 1 July – 30 June, and is applicable to compensation and investment
performance data. All financial values are in USD.

We surveyed and reported on a total of 118 endowments and foundations, representing a total
market value of $420.9 billion. Assets under management range from $800m to $32 billion, with the
median fund size of $3.5 billion. Seventy five percent of respondent had assets under management of
$1-5 billion.

The study found marked difference in compensation, asset allocation and investment performance
when compared by fund type and size. Average compensation for CIO’s is roughly equal between
endowments and foundations, though endowments have a more extreme compensation range. The
general trend also showed that compensation increases with fund size. However, fund size does not
translate into significantly differing performance. Endowments & Foundations will be looking to
increase their allocation to alternatives – Private Equity, Hedge Funds, Infrastructure and
Commodities – and emerging markets in the coming years.

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DHR International

Surveyed Participants

DHR International focused its efforts to interview and gather data on endowments and foundations
across the US. For endowments, we endeavored to cover a variety of educational institutions,
including public, regional, private, liberal arts and specialized universities. This 2011 survey examined
compensation, asset allocation and investment performance for a total of 118 funds. This includes 74 Page | 4
endowments and 44 foundations with a collective market value of $420.9 billion.

The tables below break down the assets among respondents by fund type and assets under
management:

Type Number of Funds Market Value (Bln)

Endowments 74 278.2

Foundations 44 142.7

Asset Size Number of Funds Market Value (Bln)
(Billions)
<1 3 2.5
1-2 62 86.7
2-5 28 91
5-10 17 114.7
> 10 6 124

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DHR International

Compensation

The latter half of 2011 was an active period by all accounts with, a larger degree of turnover resulting
from retirements, abrupt departures, internal promotions and new opportunities arising within
competitor institutions. During the course of the downturn, 2008-09 in particular, employed
individuals were primarily focused on “weathering the storm” in order to ensure that they were Page | 5
sufficiently protected from layoffs. With increased economic confidence, we are seeing a rise in
willingness to consider new options.

From an employer’s standpoint, the downturn in the
markets forced organizations to evaluate their bottom
line and make cuts where necessary. In the endowment
and foundations sectors, there was an ever-present need
to cut unproductive staff, and at the same time
incentivize high performance employees. Despite relative
insecurity in the market, the demand remained for
investment professionals capable of generating steady
returns through bull and bear markets. Endowments and
foundations have generally paid employees better than
public pension plans, with greater incentives through pay-
for-performance structures. Moving forward, both types
of institution will need to focus on performance-related
pay in order to attract talent.

The median compensation for CIO’s at endowments and
foundations remain closely correlated. Base salaries
continue to be in the range of $200,000-$350,000, with
total compensation ranging from $350,000-$800,000.
Seventy percent of respondents have a base salary
between $200,000 and $350,000 with their total
compensation ranging from $350,000 to $800,000. The
main difference between endowments and foundations is
at the extremities. The lowest salaries for endowments
and foundations were $200,000 and $220,000
respectively, but highest salaries were $4.75m and $2.8m
respectively. Furthermore, a greater percentage of
endowment CIO’s were remunerated above $2m per
annum than foundation CIO’s. The most significant finding
shows that annual compensation increases based upon a
fund’s assets under management, regardless of
investment performance. Therefore, if two managers
record equivalent investment performance, their annual
compensation will be greatly determined by the sum total of the assets each manages.

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DHR International

Asset Allocation

DHR’s asset allocation survey focused on ten categories listed in the table below. The percentage
breakdown represents weighted averages. As such, the portfolios of the largest funds had a greater
influence on the results.
Page | 6
Total Assets Breakdown Market Total
Value Assets
(Blns) (Median)
Total Assets 420.9 100%

Domestic Equity 78.7 18.7%
Domestic Fixed Income 55.1 13.1%
Global/International Equity 59.8 14.2%
Global International Fixed Income 1.7 0.4%
Emerging Markets Equity 4.6 1.1%
Private Equity 70.7 16.8%
Hedge Funds 83.3 19.8%
Real Estate 20.6 4.9%
Inflation Hedging/Other 38.7 9.2%
Cash 7.6 1.8%

The asset classes representing the largest allocations were hedge funds, domestic equity, private
equity and global/international equity. Collectively these figures represent approximately 70%
exposure to equity. Significant allocations also include domestic fixed income, inflation hedging and
real asset type asset classes. Collectively these six asset classes represented almost 80% of the $420.9
billion surveyed. Investments in the remaining asset classes accounted a much smaller proportion of
total assets.

Surveyed funds reported diversified investment
portfolios, with a large proportion of non-
correlated assets. Increasingly larger allocations to
alternative investments, commodities,
infrastructure and real estate provided enhanced
returns through 2010-11. Despite suffering from
significant losses in 2008-09, the
endowment/foundation model is providing a
benchmark for achieving “equity-like” returns,
non-correlated to the US market cycle.

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DHR International

Endowments Allocation

With approximately 20.3%, endowments had the highest allocation to hedge funds in 2011. This
figure is closely followed by domestic equities (18.1%), private equity (16.1%), global/international
equity (14.1%) and domestic fixed income (13.2%). Endowments also had the largest allocation to
alternative asset classes in general, representing over 40% of their portfolio. Page | 7

Endowments Asset Breakdown Market Total
Value Assets
(Blns) (Median)

Cash 5.3 1.9%

Foundations

The average alternatives exposure for foundations was 38%, with 18.1% and 17.3% allocation to
private equity and hedge fund respectively. Foundations also had an 8.2% exposure to infrastructure,
commodities and other inflation hedging assets. Indications show that future years will provide
greater allocation to asset classes that provide higher returns within low-risk parameters.

Foundations Asset Breakdown Market Total
Value Assets
(Blns) (Median)

Cash 2.3 1.6%

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DHR International

Endowment vs. Foundation Asset Allocation

Our survey results showed that both endowments and foundations have sought out diverse
investment opportunities, incorporating a blend of equity, fixed income, real estate, private equity,
commodities, infrastructure and emerging market asset classes. Whilst continuing to incorporate
domestic stocks and bonds as well as global/international equity and fixed income, the predominant Page | 8
focus of both types of funds rests on diversification away from traditional asset classes to alternative
asset classes.

Many endowments and foundations are allocating 15-20% toward absolute return strategies, and
reducing their fixed income exposure. CIO’s deduce that this type of strategy will lead to stabilized
returns over the long-term given that absolute return strategies respond to all types of market
conditions, while bonds do not participate equally in strong markets. Furthermore, commodities,
infrastructure, emerging market equities and real estate have gained increased prominence in
endowment and foundation portfolios.

Participation in private equity and venture capital investments has fluctuated very little over the past
few years. Foundations generally have a higher allocation to private equity type investments;
however the asset class remains an important allocation to both types of funds. Despite poor returns
in recent years, private equity/venture capital is viewed as a critical component in the asset allocation
for both endowments and foundations alike.

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DHR International

Performance

Endowments fared better than foundations in the past few years. Between 2009 and 2011,
endowments out-performed foundations by an average of 65 basis points. Despite significant losses
in FY 2009 (-19.1% on average), both endowments and foundations had erased the differential by FYE
2011 (19.8% and 19.1% respectively). However, with markets tumbling in Q$ 2011, performance once Page | 9
more receded into negative territory. Endowments managed to stymie losses due to a higher
allocation to absolute return strategies, commodities and other real assets as well as lower
allocations to domestic equities and private equity/venture capital. Despite significant losses in FY
2009, the last two years resulted in exceptional returns as the market grew in confidence. Yet, given
the deteriorating situation in Europe and resultant figures closer to home, the FY 2012 has gotten off
to a cumbersome start.

Recent years showed that funds with greater assets outperformed those with smaller funds when the
markets were strong, but small funds fared better in weaker markets. Funds between $2-10 billion
generally performed better whilst the market posted negative returns in 2009; however larger funds
posted greater returns in the stronger markets of 2010 and 2011. Our results showed that funds with
higher assets tended to have a higher allocation to hedge funds and other higher-yielding asset
classes and hence could weather this more recent downturn better than funds with less
diversification. In the long run, greater assets under management may well result in greater
opportunities at home and overseas, allowing larger funds to gain increased prominence.

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DHR International

Trends

During the course of our research we asked participating CIO’s and Senior Portfolio Managers about
likely asset allocation trends in the near future. In particular, we were keen to ascertain the allocation
changes regarding the asset classes discussed thus far. Our research uncovered the following asset
allocation considerations for the coming three years: Page | 10

Our findings highlighted that investors turned negative towards sovereign debt – primarily as a result
of concerns over the Eurozone – and also towards core equity classes. The outlook over the next
three years is likely to be one of diversification from core asset classes into alternatives, with real
estate, infrastructure, private equity and hedge funds attracting the strongest interest. Despite
stagnation in fixed income asset classes, anticipated increases in allocation to alternatives is likely to
come from equities.

Entry into emerging market equities is also likely to increase steadily over the next three years. As
equities in the domestic and global markets yield lesser returns, funds will likely access the potential
of harnessing greater risk-adjusted returns through investments in emerging markets, in particular
BRIC countries as well as peripheral Asia-Pacific and South American countries.

Respondents indicated plans to make changes to their risk management approach, increasing the
sophistication of their internal decision making and governance processes. Across endowments and
foundations, investors are seeking greater transparency. Larger institutions are trending towards
separately managed accounts, but nearly all respondents want greater accountability from external
managers.

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DHR International

People Moves (2011)

Jonathan Glidden joined Delta Airlines as Managing Director for Pensions. He previously held the
Director of Manager Research and Portfolio Construction designation at Wilmington Trust.

Karl Scheer joined University of Cincinnati as Chief Investment Officer. He previously held a senior Page | 11
manager role at Summer Hill Capital Partners, a low-profile multi-family office controlled by the
Farmer family of Cincinnati

Trent May joined Koch Industries as Chief Investment Officer for the family office and foundation. He
previously held the CIO designation for Wyoming Retirement System.

John Devir joined PIMCo as Executive Vice President for the Credit Analysis team. The move comes as
controversial following Mr. Devir’s acceptance of a Managing Director position within Harvard
Management Co. which he subsequently turned down. Mr. Devir was previously Head of Equity
Strategies for Barclays Capital.

Du Chai joined Horsley Bridge Partners as Managing Director. He previously held a Managing Director
designation for Private Investments and Real Assets at Northwestern University.

John Regan leaves Cornell University to start Permanens Capital Advisors. He previously held a Senior
Investment Officer designation within the endowment.

Michael Reist was promoted by Phillips Academy endowment as Chief Investment Officer. He
previously held the Director of Investments designation at the endowment.

Ken Frier stepped down as Chief Investment Officer of Stanford Management Co. He joined SMCo in
August 2010 from Hewlett-Packard Co.

Allison Kendrick Thacker joined Rice Management Co. as Chief Executive Officer and Chief Investment
Officer. She previously held a Managing Director designation within RS Investments.

Meredith Jenkins and Kim Lew were promoted to Co-Chief Investment Officers of the Carnegie
Corporation Foundation. They replace D. Ellen Schuman who resigned for personal reasons.

Satu Parikh joined Harvard Management Co. as Head of Commodities. He previously held the
President and Head of Trading with RBS Sempra Commodities.

Lisa Mazzocco joined USC endowment as Chief Investment Officer. She previously held the CIO
designation within the Los Angeles County ERA Pension Fund.

Mansco Perry III joined Macalester College as Chief Investment Officer. He previously held the CIO
designation within the Maryland State Retirement Agency.

Michael Barry joined Georgetown University as Chief Investment Officer. He previously held the CIO
designation within the University System of Maryland Foundation.

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Rosalind Hewsenian was promoted to Chief Investment Officer of the Leona M. and Harry B. Helmsley
Charitable Trust in New York. She was previously Deputy CIO, and replaces Linda Strumpf.

Michael Abbott stepped down as Chief Investment Officer of Cornell University. A.J. Edwards, Senior
Investment Officer, steps in a Interim Chief Investment Officer.
Page | 12
Lisa Danzig joined Post Rock Advisors as Managing Director. She previously held the CIO designation
within the Rockefeller University endowment.

Daniel Arlandson joined University of Minnesota Foundation Investment Advisors as an Investment
Manager. He previously held a Senior Investment Associate designation at Jeffrey Slocum & Co.

James Cuno joined J. Paul Getty Trust as President and Chief Executive Officer. He previously held the
President designation for the Art Institute of Chicago.

Clarrissa Hunnewell joined Boston University as Chief Investment Officer. She previously held a
Managing Director role within Cambridge Associates.

Nicholas Warren joined Brandeis University as Chief Investment Officer. He previously held a
Managing Director role within Cambridge Associates.

Pamela Peedin joined Dartmouth University as Chief Investment Officer. She previously held the CIO
designation at Boston University.

Rene Canazin joined Harvard Management Co. as Managing Director and Senior Portfolio Manager
for Debt Markets. He previously held a Managing Director and Head of U.S. Credit and Global High
Yield Trading at Barclays Capital.

Amy Falls joined Rockefeller University as Chief Investment Officer. She previously held the CIO
designation within the Phillips Academy endowment.

Sid Browne stepped down as Chief Investment Officer of Yeshiva University.

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Endowments & Foundations 2011

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