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Dartmouth Endowment Return Sets Record

David Russ explains the strategy behind the results

David Russ has the kind of computer not ordinarily seen in Dartmouth administrative offices. One of its two screens is a dynamic collection of data, trend lines, and moving graphs that continually tracks what's happening in the world's financial markets. "It's my window on the world," explains Russ. "All the global financial markets are interlinked. We need to anticipate the future impacts on our investment portfolio when economic forces converge or diverge in real time. We need to be able to look around the corner."

David Russ
David Russ, Dartmouth's chief investment officer, works closely with Trustees and senior administrators to make the best use of Dartmouth's endowment. With high praise for colleagues Ellen Brownell, David Marcus, and Daniel Lynch in Dartmouth's endowment investment office, Russ says, "It all adds up." (Photo by Sarah Memmi)

As Dartmouth's chief investment officer, it is Russ's job to ensure the health of the endowment—a complex collection of more than 5,000 individual funds—and to design strategies that enable it to support almost every aspect of life at the College while growing in total value. Gifts directed to the endowment are meant to endure "in perpetuity," supporting specific, defined activities like financial aid, endowed professorships, and other programs, and providing investment income to fund the College's operating expenses.

Dartmouth's endowment is one of the largest in the nation. In the last calendar year, it outperformed most other university endowments, earning a record 19.6 percent return and growing in total value from $2.9 billion in December 2005 to $3.5 billion as of December 31, 2006.

"The endowment enables us to provide a superb education to current and future generations," says Russ. "We want it to grow so more can be used to support the College's operating budget. Generous alumni and friends contributed $160.3 million last year—an all time high—$68.4 million of which went to the endowment to fuel its growth."

Endowment management at Dartmouth relies on an equilibrium between asset allocation models that maximize return and spending policies that provide support while ensuring future growth and stability. Russ, his staff, the Trustees, and senior administrators toggle these interlocking strategies to arrive at higher learning's equivalent of the bottom line: a superlative educational environment that endures across the generations.

"While there are over 5,000 individual funds in the endowment, the total return pool (TRP) is a single entity," explains Russ, who came to Dartmouth in 2005 from California, where he was treasurer of the regents and vice president for investments for the University of California system. "There's a single asset allocation strategy for the TRP and for each of the funds invested there. Our role is to invest the assets to produce the highest risk-adjusted return."

Russ and the Trustees who tend to Dartmouth's endowment not only deliver head-turning results, they clearly enjoy each other's company. Trustee and Chair of the Board's Investment Committee Pamela J. Joyner '79 says, "David is one of the most highly regarded chief investment officers in the country, and he's delivered a tremendous result in a short period of time." For his part, Russ describes the committee as "one of the most creative, hard-working, and experienced groups I've ever worked with. They're highly sophisticated investors."

Chart of Endowment Allocation, FY 2006
The Dartmouth College endowment is a complex collection of more than 5,000 individual funds. It supports almost every aspect of life at the College.

Based largely on his analysis and recommendations, the Board approved a new asset allocation policy last year—one that positions the portfolio to exploit emerging opportunities. "We reduced bond exposure from 15 to 5 percent while adding Treasury Inflation-Protected Securities (TIPS) that vary with the consumer price index, a key inflation gauge," Russ says. "One of our greatest concerns is unanticipated inflation and its impact on the College's spending policy. The TIPS provide a natural hedge."

The new strategy, which Russ credits with last year's investment outcome, also includes increased opportunities in international and emerging markets, reduced exposure to U.S. equity markets, exposure to absolute return strategies, venture capital, leveraged buyouts, and real estate and other partnerships.

"Many believe that they should stick with assets that have performed well historically," says Russ. "But that's investing in last year's returns. Just as individuals need portfolio-balancing policies, institutions need them as well.

"Dartmouth works the endowment from both the investment and the management ends," he explains. "We only spend a portion of what we earn. In the fiscal year that ended June 30, 2006, we sent $129 million to the operating budget while the total return on investments over that same period was $403 million. The remainder was reinvested in the endowment portfolio."

Adam Keller, executive vice president for administration, says Russ has brought new leadership and skills in investment management to the College. "He's introduced a more rigorous set of analytic tools and is using them to develop better risk and return analyses."

But Trustees and senior administrators aren't Russ's only fans. Colin Blaydon, the William and Josephine Buchanan Professor of Management at the Tuck School of Business and the director of its Center for Private Equity and Entrepreneurship, calls him a "real rocket scientist. He's analytical in the way he looks at the asset allocation question, and he so obviously enjoys what he does." Russ is a regular in Blaydon's private equity and finance class. "He's a wonderful resource for students," says Blaydon, "because he's so good at what he does and so clear at describing it."

Endowment Market Value graph
In 1986, Dartmouth's endowment was valued at just under $500 million. As of December 31, 2006, it stood at $3.5 billion. (Graphs: Endowment Investment Office)

One of those students, Amy Kaminski, Tuck '06, approached Russ to work on a project. "She wanted to know how to get a job like mine," he recalls. "I suggested we design a quantitative project on portfolio optimization that would help her develop her portfolio management skills. She did a great job." Now at Hewlett Packard investing pension funds, Kaminski says, "Working with Dave was an incredible learning experience. He was so generous with his time. Even today, he continues to give me great career advice. He's a real mentor."

"I have more contact with students and faculty at Dartmouth than I've had anywhere," says Russ. "It's a characteristic of our unique educational environment. At other places you're off in your office, and you don't see how your work connects with students and faculty. At Dartmouth, you never lose sight of that."

By LAUREL STAVIS

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Last Updated: 5/30/08