Resources and information

Our combination of professionals from major endowments and asset managers, along with our meaningful experience as an outsourced CIO provides Covariance with the ability to offer a distinctive perspective to our clients. The resources provided here give you access to our thinking and approach to endowment management and the capital markets.

The Outsourced Chief Investment Officer Relationship

The OCIO relationship helps you efficiently share responsibility for the management of your organization’s endowment. This piece explains the rationale behind the OCIO solution, how the relationship typically works and how an OCIO arrangement differs from a consultant relationship.

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Asset Allocation with Short-Term and Long-Term Risk Objectives

Asset allocation is arguably the most meaningful driver of long-term returns for institutional portfolios. This piece takes an in-depth look at how short-term and long-term risks influence asset allocation decisions, along with the impact that spending policy and alpha generation have on the policy portfolio.

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Endowment Management and the Benefits of Active Investing

The question of active-versus-passive investing is a compelling debate for many fiduciaries of investment capital. Within this paper, we answer three key questions: 1) Why active management? 2) Why active management now? 3) Why a dedicated research team? The research suggests that alpha exists in the long run but is cyclical in the short run, and that we may be in a favorable part of the cycle for active management. We also emphasize the important role of alpha in helping an endowment portfolio meet its return target in a risk-controlled way.

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Evaluating Spending Policies in a Low-Return Environment

Many institutional investors are concerned that a low-return environment is ahead, forcing stakeholders to reevaluate the prudence of their investment and spending policies. We present a framework to assess spending policies, and also analyze two prominent spending models across a variety of short-term and long-term metrics. The results suggest that return-sensitivity is an important factor to consider. We also confirm that a downshift in spending may be sensible for some institutions, and offer one method to evolve a spending paradigm in a gradual and sustainable way.

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A Dynamic Approach to Spending and Underwater Endowment Policy

Recent performance in the capital markets has forced institutions to consider lower return expectations over the near term and how that may impact their spending policy, particularly as it relates to “underwater” endowments. We analyze the risks inherent in constant spending models and propose a dynamic approach that aims to reduce the risk of endowments becoming underwater. We observe that a variable spending program actually helps reduce the underwater risk in the short term and enables an endowment to grow over the long term.

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Managing the Uncertainty: An Approach to Private Equity Modeling

Building and maintaining a private equity allocation is important to many long-term investors, but proves to be a difficult exercise given the unique characteristics of the strategy. This piece proposes a Monte Carlo model that better enables endowments to project distributions and unfunded liability levels, and better measure and manage various liquidity and rebalancing risks. It also offers insights into the optimal ways of building up an allocation to private equity strategies.

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