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MIT's Strategic Investment Insights

This document summarizes MIT's endowment investment strategy. It discusses MIT's responsibilities in managing various financial assets, including its endowment. It outlines MIT's investment model, which focuses on identifying competitive advantages, maintaining a defined circle of competence in absolute return strategies, being willing to invest in new and small managers, having a flat staff structure, preferring hard-to-undervalue assets, ignoring benchmarks, and maintaining a top-down risk framework. Charts show the endowment's portfolio composition and long-term outperformance relative to peers. The presentation concludes by discussing common mistakes other endowments make.

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1K views13 pages

MIT's Strategic Investment Insights

This document summarizes MIT's endowment investment strategy. It discusses MIT's responsibilities in managing various financial assets, including its endowment. It outlines MIT's investment model, which focuses on identifying competitive advantages, maintaining a defined circle of competence in absolute return strategies, being willing to invest in new and small managers, having a flat staff structure, preferring hard-to-undervalue assets, ignoring benchmarks, and maintaining a top-down risk framework. Charts show the endowment's portfolio composition and long-term outperformance relative to peers. The presentation concludes by discussing common mistakes other endowments make.

Uploaded by

hams
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

MIT Presentation

Management Development Institute


New Delhi, India
February 4, 2016

MITIMCo Major Responsibilities

MITs Financial Assets


Endowment
Retirement Plan
Retiree Welfare Benefit Trust
Life Income Funds
Working Capital

-1-

Investment Model Seven Core Ideas


1.

We look for competitive advantages

Private Equity
Real Estate
U.S. Equity
Marketable Alternatives
Emerging Equity
Real Assets
International Equity
Fixed Income

-2-

Active Manager
Relationships
30
10
9
9
7
7
6
1
79

Investment Model Seven Core Ideas


2. We have a well-defined circle of competence
We focus on absolute return, bottom-up, value-oriented strategies

No trading and momentum strategies

No relative return strategies

No macro strategies

No quantitatively-driven strategies

We focus on A+ managers

No B managers with A opportunity sets

-3-

Investment Model Seven Core Ideas


3. We are willing to be first (and wrong)
Of our manager hires last year:
In over 80% of hires, we were the first institutional investor or part of a
small group of institutional investors helping to put a firm in business
In over 50%, the manager had $200 million or less in AUM

-4-

Investment Model Seven Core Ideas


4. We have an unusual investment staff structure

Flat structure no titles and no hierarchy

Generalists no asset class specialization

-5-

Investment Model Seven Core Ideas


5. We prefer assets that are hard to underwrite
1.

Brand new company with no cash flows

2.

Retail center that is half-empty

3.

Ship builder in Greece

4.

New business models, like Amazon in the early


2000s

-6-

Investment Model Seven Core Ideas

Expected Returns

6. We ignore benchmarks when making allocation decisions

Conviction

-7-

Investment Model Seven Core Ideas


7. We maintain a top-down risk framework

We monitor:
- Asset Allocation
- Currency Exposure
- Drawdown Potential
- Geographic Exposure
- Leverage Levels
- Liquidity Availability
- Manager Concentration

-8-

Portfolio Composition

-9-

MIT Outperforms Average Endowment


(Returns ending June 30, 2015)

MIT Endowment
Cambridge C&U Median
Difference

1 Year
13.2%
2.1%
11.1%

3 Years
14.4%
10.0%
4.4%

*Cambridge Associates College and University Median

-10-

5 Years
13.8%
9.7%
4.1%

10 Years
10.4%
6.7%
3.7%

20 Years
12.9%
8.3%
4.5%

Common Mistakes
1.

Compromise their definition of success by trying to be all things to


all people.

2.

Do things because they are conventional rather than because they


are optimal.

3.

Disregard small issues early on that compound into material


problems in the future.

4.

Fall into the trap of subtly ascribing meaning to short-term


performance.

5.

Under-allocate time to the learning process.

-11-

Questions?

Seth Alexander
salexander@[Link]
Joel Cohen
jcohen@[Link]
Navneeth Harikumar
nharikumar@[Link]

-12-

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