Notre Dame was staggered but not down. Because all
investment committee members are also trustees, the board keeps
close tabs on the endowment. It helped that Malpass had served
as vice president of finance, in addition to CIO, from 1996
through 2003 and hired both the controller and vice president
of finance, who still serve today. The result: The investment
and finance offices remain close, which is important when a
school needs to monitor its cash position.
Unlike other universities, which cut back on building
projects and staff during the crisis, Notre Dames
conservative policies allowed it to continue construction and
hiring; unlike Harvard, Princeton and Yale, the university did
not need to issue taxable debt to access cash.
Malpass and his team are still shaken by the crisis.
It amazes me how few investors
saw it coming, despite all the brilliant minds that work in
investments, Donovan says. In the fall of 2008, Malpass
and his staff performed a full-scale review of liquidity, to be
prepared for further market drops. The total portfolio was
given an explicit liquidity target, an exposure that would
enable rebalancing from a market shock or sudden opportunity.
We didnt get out over our skis where we had to sell
or borrow, says investment director Michael Cook, head of
the real-assets portfolio. If capital calls had
accelerated past distributions, we would have had to do things
we didnt want to do. Adds executive vice president
Affleck-Graves: It was the most traumatic time on the
committee. Changes were made.
William James, a 1992 graduate who joined the investment
office five years later to oversee fixed income, energy,
commodities and timber, then picked up manager selection in
multistrategy, distressed and credit
hedge funds, received another new job risk manager
in 2011. James had been exploring hedging opportunities
and had formulated a credit default swap strategy. Risk
management is a lot about anticipating things, he says.
The role of a risk manager has evolved to being a
strategist. He analyzes which countries have the most
debt or most-unstable political systems, then asks what the
opportunities are inside the risks.
More recently, Buhrman and investment director Paul Buser
have begun a project dubbed R&D to learn how to identify
top managers early in the game. Meeting with hedge fund
managers and prospects over the years gave the public capital
team the idea. We want to improve our pattern recognition
of investments that can sustain themselves over decades,
Buhrman says. The pair meet with hedge fund managers to talk
about their investment frameworks. Were creating a
narrative, a flight simulation, of a fund, Buhrman
Like any R&D project, this one might not necessarily
bear fruit, but Malpasss long-term philosophy gets it on
the agenda. As a CIO I love the fact that were
understanding why theyre good, he says.
Its very transferable. Theyre not going to
give us all their secrets, but theyre pretty
For his part, Malpass is not going anywhere. Hes still
relatively young, and theres lots to do. Hes
currently focused on early identification of risks and
opportunities. Hes questioning how much time to spend on
macroeconomic research given economic uncertainty. He wants
more touch points and more international research. We
want to understand how policy is developed, what the scenarios
are, he says. We need to make time to do this. It
isnt something we were obsessed by ten years ago.
The possibilities of bad outcomes are greater now. Even people
who think about policy at the highest level dont know
whats going to happen.
The investment office is putting together more metrics and
dashboards to monitor leverage. As he watches leverage rise and
bubbles form, Malpass searches for ways to protect the
endowment hes spent decades amassing. He may start to do
more hedging because over the next three to five years
its going to be hard to unwind the massive pile of U.S.
debt. Despite 25 years of world-class investing, he confesses
to his limitations and returns to fundamental disciplines:
All I can do is have a balanced, well-diversified
portfolio with good partners.
Thats the Malpass way.