Hopkins invests in investing manager

University seeks higher return to boost $2 billion endowment

More than just stocks and bonds

Kathryn Crecelius handled alternative investing at MIT

August 13, 2005|By Meredith Cohn | Meredith Cohn,SUN STAFF

With its endowment growing in size and complexity, the Johns Hopkins University is turning to a former French professor with a knack for investing in more than just stocks and bonds to manage its portfolio.

In hiring Kathryn Crecelius, who handled alternative investing for the last seven years at Massachusetts Institute of Technology, Hopkins joins a club of schools with the biggest pots of money and lofty ambitions to make more.

Hopkins has moved more slowly than some others among the top 25 university endowments in investing in nontraditional areas such as real estate and hedge funds to improve returns.

In the 1990s, university investments in the stock market prospered with everyone else's, but institutions have had to take more aggressive tacks in recent years to generate returns and please increasingly sophisticated donors who want to know their money is being put to good use.

Schools such as Harvard and Yale universities, with the nation's largest endowments, have for more than a decade sought assets other than traditional stocks -- to great success, experts say.

They manage endowments of $22 billion and nearly $13 billion respectively, compared with Hopkins' approximately $2 billion, which places it 24th in the rankings.

Last year, university endowments in the U.S. earned an average return of 15.1 percent because of strong domestic and foreign markets and good managers, according to the Chronicle of Higher Education, a publication that focuses on colleges and universities. The average return over the past five years was a more modest 3.8 percent.

"Most schools spend about 4 to 5 percent of their endowments a year. That's the norm," said Ernest V. Montford, an Atlanta-based consultant mostly for smaller universities.

"If you're going to spend that and still pay the bills, you need to consistently make 8 percent a year on the money," Montford said. "The real trick is the consistency. That's a problem with stocks."

Hopkins began putting money into real estate, timber and hedge funds several years ago. Its move to find a full-time chief investment officer to oversee the investing began last year.

The position will be separate from the treasurer's duties for the first time.

"We wanted someone with a proven investment record," said James T. McGill, Hopkins' senior vice president for finance and administration. "[Crecelius'] investment record is superlative. ... She also knows universities. She'll fit into the culture of Hopkins easily."

McGill said there are no specific goals in terms of the type of investments or the size of the endowment, which stands at $2.165 billion. Rather, he wants to improve the general performance and reputation of the operation.

He said he did not believe the university was too far behind in hiring an investment officer or diversifying its portfolio, although he acknowledged that university investments might still be too heavy in stocks.

Turbulence in the stock market has also affected gifts to universities, the other main source of income to endowments. Donors who were happy to write checks to their alma maters when they themselves were making hefty returns have become more discriminating, said Montford, the Atlanta consultant.

Many schools have turned to in-house chief investment officers to oversee management of their endowments, although institutions with small endowments still are not likely to have a separate chief investment officer.

"We found that [large] educational endowments have been pioneers in what we call alternative investing," said Jud Koss, managing director of Commonfund Institute, a Wilton, Conn., nonprofit organization that studies university investments.

"They've only gotten more sophisticated over time. As they grow, they can go out and hire who they want to run the investments internally," Koss said.

Crecelius, who served as managing director for marketable alternative investments at MIT since 1998, built her portfolio there to $1.588 billion. It grew from 5 percent to more than 20 percent of the total $7 billion endowment at the Boston school, whose fund ranks sixth in the nation.

Crecelius, 52, starts as chief investment officer at Hopkins Oct. 1. The duties have been handled since 1989 by Hopkins treasurer William Snow. He participated in the decision to split the offices and plans to stay on in his role until his retirement next year.

"The job [treasurer] has gotten too big for one person, particularly given the increased complexity of the endowment's investment with close to 30 percent in alternative investments," he said.

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