To ensure the most cost efficient operations and effective investment management possible, all endowments that support VMI as well as the George C. Marshall Foundation are managed together--and have been for many years. First performed by the VMI Investment Committee, this work has been carried out by VMI Investment Holdings LLC since 2009.
In 2009, after enduring a decade and a half in which two “bubbles” burst, the leaders of the VMI Alumni Agencies, the Institute, and the George C. Marshall Foundation decided that more dynamic management was needed for what can best be called the VMI Endowment.
No. In 2009, it was decided to hire an independent investment firm to manage it. After an extensive search and a lengthy evaluation process, Cliffwater LLC, a nationally recognized firm that specializes in aiding institutional investors, was chosen for the task. Of course, such a management choice in no way relieves VMI Investment Holdings LLC of its fiduciary responsibilities.
Cliffwater LLC routinely reports to VMI Investment Holdings LLC, and there are quarterly meetings in which members of the VMI Investment Holdings LLC meet face-to-face with Cliffwater representatives.
Before 2009, investments that supported VMI were weighted heavily toward equities and bonds. While this meant impressive gains when, say, the stock market was booming, it translated into serious losses when the bottom dropped out of the equities market. The current overall policy goal is to protect against major downturns. The new allocation entails more fixed income and fixed income associated investments as well as what are termed “defensive alternative investments.” Recently, it was decided to allocate some funds to private-equity investments.
At the end of Fiscal Year 2014, the market value of the VMI Endowment was $371.1 million. Using the Fiscal Year 2009 market value of $234.7 million as a benchmark, this reflects an increase of $136.4 million or 58%.
Admittedly, if the investment allocation were weighted more heavily toward equities, especially U.S. equities, the performance of the endowment might be stronger at this particular time. However, the enduring health of the VMI Endowment is essential to the lasting success of the Institute. So, the current strategy is seen as the best way to generate more support for VMI as well as add value to the VMI Endowment in the long term.
Annually, the VMI Endowment has provides tens of millions of dollars to the Institute. It has done so in part because the distribution rate has been kept relatively high at 4.8% (most institutional endowments’ rate is 4%). In those years, VMI’s need for increased private support overcame the need to grow the endowment—which also affected the growth rate in its market value.
First, by adhering to a sound, long-term investment strategy that protects against market volatility as much as possible. Second, more growth in the endowment would allow VMI Investment Holdings LLC to reduce the distribution rate and return more funds to the endowment’s corpus.
Another way is by adding to the corpus through successful fundraising. In this regard, the trend in fundraising is positive. In Fiscal Year 2014, the VMI Family gave $77.1 million in gifts and commitments in support of the Institute, and many of these gifts and commitments are earmarked for new and existing endowments.