B u i l d i n g Y o u r E n d o w m E n t & F o u n d a t i o n B u s i n E s s t h r o u g h a l E v E r a g E d P a r t n E r s h i P
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Today’s investment landscape offers a growing opportunity in the endowment and foundation sector. Over the past ten years, endowments and foundations with less than $10 million have grown their assets 47%,1 and yet, they still remain a significantly under-serviced set.
The demand for sophisticated advisory solutions far outweighs the supply. Financial advisors and consultants are bifurcated. On one end, are financial advisors who typically serve individuals. On the other end, are consultants, like Fund Evaluation Group, LLC (FEG), who typically serve large organizations. Smaller foundations are caught in the middle and as a result, are not benefiting from the comprehensive service and expertise that a financial advisor or consultant could offer. In fact, many of these institutions are either working directly with money managers or have taken on the daunting role of managing their investment programs themselves.
To bridge this marketplace gap, Fund Evaluation Group (FEG), LLC offers a strategic solution for financial advisors. Together, we can leverage our strengths and build our endowment and foundation business through a mutually beneficial relationship.
1National Center for Charitable Statistics (NCCS). July 2001–September 2011.
T H E E N D O W M E N T A L L I A N C E P R O G R A M
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Industry Statistics
2Currently, there are more than 1.58 million nonprofit organizations in the U.S., including public charities (e.g., community foundations), private foundations and others. Of these, foundations with less than $10 million in assets comprise approximately 97% of the opportunity set and represent approximately $491 billion in assets.
2National Center for Charitable Statistics (NCCS). December, 2011.
THE ENDOWMENT & FOUNDATION
OPPORTUNITY
Growth in the number of nonprofit organizations has been approximately 8.6% annually for the past 10 years (July 2001 through December 2011), outpacing adequate investment ser-vices available to support this growth. There is tremendous opportunity to apply your skills in this sector and provide nonprofit organizations with the guidance they need to be suc-cessful.
W W W. F E G . C O M 3
APPROXIMATELY 1.58 MILLION
NONPROFITS IN THE U.S.
$10-100 MILLION
2%
MORE THAN $100 MILLION
<1%
UNDER $10 MILLION
>97%
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T H E E N D O W M E N T A L L I A N C E P R O G R A M 4THE LEvERAgED
PARTNERsHIP
FEg’s THREE sTEP
PROgRAM LEvERAgEs
OUR REsPEcTIvE
sTRENgTHs IN:
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sErviCing
thE CliEnt
QualiFYing
thE oPPortunitY
winning
thE BusinEss
What FEG will bring to the table
To make this alliance as successful as possible, FEG will provide advisors with: assistance to help win the business, diversified institutional portfolios, and ongoing education and support.
What the advisor will bring to the table
Financial advisors will provide relationship support and coordination to the institution. This is critical, as many institutions in this set, especially community foundations, prefer to work with local partners. Advisors will manage all components of client interface, including: sourcing the opportunity, attending quarterly meetings, communicating portfolio changes, and educating the client. These functions leverage the advisor’s strengths in building and maintaining local relationships as well as their investment knowledge and experience.
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Opportunities with the following characteristics will typically qualify for FEG’s program:
Endowment or foundation or other
nonprofit institution
Minimum of $1 million in assets
Entity involved in active search for
advisory services
Industry Statistics2 Currently, there are more than 1.57 million non-profit organizations in the U.S., including public charities (e.g., community foundations), private foundations and others. Of these, foundations with less than $10 million in assets comprise approximately 97% of the opportunity set and represent approximately $488 billion in assets.
2National Center for Charitable Statistics (NCCS). http://nccsdataweb.urban.org.
W W W. F E G . C O M 3
THE ENDOWMENT & FOUNDATION OPPORTUNITY
APPROXIMATELY 1.57 MILLION NFPO IN US
$10-100 MILLION 2% MORE THAN $100 MILLION 1%
UNDER $10 MILLION 97%
Growth in the non-profit sector has been approximately 8.5% annually for the past 10 years (July 2001 through September 2011), outpacing adequate investment services available to support this growth. There is tremendous opportunity to apply your skills in this sector and provide non-profit organizations with the guidance they need to be successful.
T H E E N D O W M E N T & F O U N D A T I O N O P P O R T U N I T Y ® W W W. F E G . C O M 5
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QualiFYing
thE oPPortunitY
PROFILING PROCESSINDUSTRY DATA & EDUCATION
PROFILINg PROcEss & INDUsTRY DATA
To profile an opportunity, an advisor provides a summary of the opportunity to FEG. While FEG will not provide lead lists, we will support advisors in order to help them better understand the opportunity set, including industry data and related information.
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T H E E N D O W M E N T A L L I A N C E P R O G R A M 6CritiCal SuCCeSS FaCtorS
at the rFP/ FinalS Stage
inDePen-Dent
aDviSor Feg
EXPERIENCE WORKING WITH
ENDOWMENTS AND FOUNDATIONS
INDEPENDENT & OBJECTIVE
INSTITUTIONAL PORTFOLIOS
(Includes access to Alternatives & Hedged Strategies)
INVESTMENT EXPERIENCE
LARGE / DEDICATED RESEARCH TEAM
LOCAL PRESENCE
RELATIONSHIP MANAGEMENT
REQUEST FOR PROPOSALS (RFPS) FINALS PRESENTATIONS Name NAME
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REQUEsT FOR PROPOsALs & FINALs PREsENTATIONs
Often, Request for Proposals (RFPs) may pose a significant “barrier to entry” for the independent advisor interested in expanding into the institutional opportunity set. Commonly, these questionnaires contain 30-50 questions, require a dedicated team to complete and have short turn-around times. To ease this process, FEG can help complete the RFP with answers that capture FEG’s institutional experience and capabilities.
Smaller institutions appreciate finals presentations that reflect their organization’s mission and vision. Therefore, FEG can assist advisors with the development of a finals presentation.
winning
thE BusinEss
FEG’s dedicated RFP team
has a combined 20+ years
experience crafting materials
to help win institutional
business.
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W W W. F E G . C O M 740%
40%
21%
sErviCing
thE CliEnt
DEVELOPING INVESTMENT OBJECTIVES STRUCTURING CLIENT PORTFOLIOS SUPPORT FOR CLIENT MEETINGS
THE INvEsTMENT POLIcY sTATEMENT (IPs)
The Investment Policy Statement (IPS) establishes expectations and is a powerful tool to assist in communications between the board, investment committee, staff, investment managers, and investment advisor. A well-written IPS will provide a new committee member with an understanding of the institution’s investment objectives and how it intends to meet those objectives. The IPS may specify various items, such as:
The fiduciary responsibility of all those involved and a statement defining
the prudence with which all decisions will be made
The role of the board, investment committee, staff, investment managers, and investment advisor
Spending policy
The institution’s required return objectives
The asset allocation targets and ranges developed to achieve the return objectives
Asset category rationales
Rebalancing guidelines
Policy on the use of active and passive management
The performance and risk benchmarks for the overall portfolio and individual managers
Manager guidelines and restrictions
Social guidelines
Manager evaluation process
Acknowledgement section where all fiduciaries attest to these policies
FEG has years of experience with institutional Investment Policy Statements and can help support the advisor with sample policies and related education.
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T H E E N D O W M E N T A L L I A N C E P R O G R A M 83
sErviCing
thE CliEnt
DEVELOPING INVESTMENT OBJECTIVES STRUCTURING CLIENT PORTFOLIOS SUPPORT FOR CLIENT MEETINGS
40%
40%
FEg’s MANAgED PORTFOLIOs
FEG’s Managed Portfolios are designed as institutional-caliber solutions. Six portfolios are available with varying risk profiles, and include the following features:
global Diversification: FEG’s industry-leading diversification is based on the fundamental drivers of
correlation vs. the absolute quantity of funds, and incorporates alternative asset strategies. Drivers of correlation include: returns, equity risk mitigation, inflation protection, and diversifying strategies (e.g., alternative asset classes).
Blend of Active and Passive Management: FEG selects active management strategies in categories and
sectors that suggest outperformance is possible. In other areas, FEG selects low-cost passive strategies including Exchange Traded Funds (ETFs) and index funds.
Dynamic Asset Allocation: FEG’s Managed Portfolios dynamically adjust to long-term opportunities and
threats in the marketplace—such as current market sentiment, valuation adjustments and geographic
exposure. EQUITY MODERATEGROWTH BALANCED
BALANCED INCOME & GROWTH INCOME & GROWTH CAPITAL PRESERVATION CAPITAL PRESERVATION FIXED INCOME FIXED INCOME Global Equity Global Fixed Real Assets Diversifying Strategies MODERATE
GROWTH ENDOWMENT EQUITY
EQUITY MODERATEGROWTH BALANCED
BALANCED INCOME & GROWTH INCOME & GROWTH CAPITAL PRESERVATION CAPITAL PRESERVATION FIXED INCOME FIXED INCOME Global Equity Global Fixed Real Assets Diversifying Strategies MODERATE
GROWTH ENDOWMENT EQUITY
EQUITY 100% S&P 500 Stock Index BALANcED 50% S&P 500 Stock Index 50% Barclays Capital Aggregate Bond Index INcOME & gROWTH PORTFOLIO 40% S&P 500 Stock Index 60% Barclays Capital Aggregate Bond Index MODERATE gROWTH 70% S&P 500 Stock Index 30% Barclays Capital Aggregate Bond Index cAPITAL PREsERvATION PORTFOLIO 20% S&P 500 Stock Index 80% Barclays Capital Aggregate Bond Index FIxED INcOME PORTFOLIO 100% Barclays Capital Aggregate Bond Index
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sUPPORT FOR cLIENT MEETINgs
FEG provides you with a number of resources that will help enable you to proactively service your
client(s).
QUARTERLY PORTFOLIO cOMMENTARY
FEGposts a portfolio and market commentary every quarter. This report
reviews drivers of recent performance, our current outlook as well as any portfolio shifts that occur during the quarter.
QUARTERLY WEBINARs
FEG hosts quarterly webinars with its Portfolio Strategist. FEG’s goal is to provide a clear perspective of the portfolio allocation, strategy, and imple-mentation. The discussion features the current market conditions as well as how the portfolio is positioned relative to future market impact.
PORTFOLIO sPOTLIgHT
This report provides details of significant shift(s) made in the FEG’s Managed Portfolios, and documents the rationale for portfolio trades.
FAcT sHEET
This piece outlines the strategy overview, portfolio diversification, and provides performance details.
REsEARcH REvIEW
This monthly newsletter provides our economic and market commentary. We also look to provide education about strategies, including alternative investments, and current investment topics and trends.
ANNUAL INvEsTMENT FORUM
FEG’s annual investment forum attracts leading industry speakers to share their thoughts with invited clients, advisors, and invited guests. Past speakers have included Byron Wien, Mohamed El-Erian, Howard Marks, and Sam Zell.
Q U A R T E R LY C O M M E N TA R Y
SECOND QUARTER 2011
APPROVED FOR CLIENT USE
Page 1
Performance at a Glance
Returns for the global stock market were flat to slightly negative during the second quarter, depending on the benchmark, yet remained in positive territory year-to-date. Bond markets outperformed stocks as interest rates declined. In this commentary, we review economic, market, and portfolio developments, as well as share our outlook.■
MPS-3303-F 9-12-2011
P O R T F O L I O S P O T L I G H T JUNE 2011
APPROVED FOR CLIENT USE.
Page 1
FEG recently adjusted the composition of the hedged equity portion of the portfolio for those clients who do not have exposure to traditional long/short equity hedge fund of funds. This Portfolio Spotlight describes the change in more detail.■ MODIFYING HEDGED EQUITY
MPS-3302-F 9-12-2011
About FEG/Managed Portfolios
Fund Evaluation Group, LLC (FEG) is an independent, full service advisory firm that has provided investment services to institutional clients for over 20 years. FEG clients include endowments, foundations, retirement plans, wealth managers and investment advisors. FEG is employee owned and derives revenue solely from client fees, ensuring independence and objectivity. FEG/Managed Portfolios are managed by a team of four experienced investment professionals and supported by a large research group that is organized to cover global markets including traditional and alternative managers. The FEG research team meets with approximately 900 managers annually and performs proprietary research on capital markets and industry trends. F E G M A N A G E D P O R T F O L I O S
STRATEGY OVERVIEW SECOND QUARTER 2011
APPROVED FOR ADVISOR USE. NOT FOR PUBLIC DISTRIBUTION. Must be accompanied with Strategy Fact Sheets. Performance Summary XX(as of 6/30/2011)
Returns are presented Gross of management fees and any other expenses for service not covered by the advisory fee which would reduce the return. Full composite returns are available upon request. Above benchmarks are shown solely for illustrative purposes. For returns net of advisory fees and further descriptions of portfolio benchmarks and indices, please see the associated Fact Sheets for each strategy. Advisory fees are described in FEG’s Form ADV, Part II. All return calculations are in U.S. Dollars. Past performance is not indicative of future results. Please see Strategy Fact Sheets for full disclosures.
FEG Portfolios are constructed using the same philosophy ap-plied to large institutional clients: a risk management approach that seeks to add value through both asset allocation and man-ager selection. Portfolio investments include both exchange-traded funds (ETFs) and mutual funds. Asset allocation is dynamic based on long-term valuation analysis.
Investment Philosophy Risk Global Diversification Dynamic Allocation Index Strategies Active Managers ALLOCATION POLICY MANAGER SELECTION AC TIVE PAS SIVE Retu rn Equity Fixed Income Equity 50% 50% 70% 30% 40% 60% 20% 80% 100% 0% Moderate Balanced Income & Growth Capital Preservation
0% 100%
Fixed Income
Portfolio Performance (Gross of Fees)*QtrYTD1 Yr3 Yr5 Yr7 Yr2010 2009 2008 2007 2006 2005 2004 2003
Equity 0.1%4.4% 28.6% 3.3%3.4%-13.7% 31.8% -37.1% 6.7% 19.1% 4.5%- -Moderate Growth 0.5 4.2 22.3 4.9 5.0 6.9 12.8 28.6 -29.4 7.4 15.9 8.4 15.2 27.3 Balanced 0.9 3.9 17.2 5.8 5.5 -10.6 23.7 -20.8 6.6 11.4 6.7 5.4 -Income & Growth 1.0 3.8 14.7 6.0 5.6 -9.7 22.5 -17.8 6.6 9.8 6.0 4.6 -Capital Preservation 1.3 3.6 11.0 6.8 --8.7 20.1 -11.7 ---- -Fixed Income 1.8 3.3 7.4 ---8.4 19.4 ---
-Market Indices:S&P 500 Stock Index0.1 6.0 30.7 3.3 2.9 4.2 15.1 26.5 -37.0 5.5 15.8 4.9 10.9 28.7 Barclays Capital Aggregate Bond Index2.3 2.7 3.9 6.5 6.5 5.5 6.6 5.9 5.2 7.0 4.3 2.4 4.3 4.1 *Report For Periods Ending June 30, 2011. Returns greater than 1 year are annualized. Calendar year-end returns may represent partial year returns. Please see individual fact sheets for full disclosures.
MPS-3402-A 9-12-2011
SECOND QUARTER 2011
Page 1
information@feg.com © 2011 Fund Evaluation Group, LLC
MARKET OVERVIEW Concerns over the global economic recovery’s momentum, the ongoing European sovereign debt crisis, and a potential U.S. credit downgrade led to weak equity and credit returns, but modest gains for investment grade bonds during the second quarter. After 3.1% GDP growth in the fourth quarter, the U.S. economy grew less than 2% in the first quarter of 2011, unemployment remained above 9%, and some were questioning whether the U.S. is headed for another recession. Across the Atlantic, the International Monetary Fund and the European Union provided more bailout funds to Greece in order to prevent a default on their government debt. Fears of default also spread to the other PIIGS (Portugal, Italy, Ireland, Greece, and Spain) countries. On the domestic front, massive government spending and the possibility of Congress not approving an increase in the debt ceiling led both Standard & Poor’s and Moody’s to warn of downgrades to the credit rating of U.S. debt. On the positive side, corporate earnings remain strong and companies are flush with cash. Many believe the uncertain economic and political environment is discouraging companies from spending and investing this cash. If this uncertainty subsides and economic growth accelerates, we could see companies increase their spending and investing, including hiring, and consumers increase their spending. This certainly would be welcomed, as the U.S. government looks to cut spending to reduce the deficit. Although volatility was not as high as experienced the last few years, the markets displayed “risk-off and risk-on” sentiment throughout the quarter. Despite the end of the Federal Reserve’s second quantitative easing (QE2) and fears of a U.S. debt default in August without an increase in the debt ceiling, there were periods where a flight-to-quality rally boosted Treasury prices and yields fell. In fact, the 10-year Treasury yield declined from 3.47% at the beginning of the quarter to 3.16% on June 30. Gold, which ended June at almost $1500 per ounce, and the Swiss franc also benefitted from the flight -to-quality rally, as investors looked for other places to protect their assets during these difficult times. Equity markets started the quarter on a strong note, with the S&P 500 Index advancing 3% in April, only to fall 1% in May and almost 2% in June. The June return would have been much worse if not for the rally during the last week of the month.
Christopher M. Meyer, CFA
Managing Principal Chief Investment Officer
INSIDE THIS ISSUE
Focus Topic: Market Overview 1 Focus Topic: Greece – The Crisis of Contagion 5 Economic Update 8 Domestic Equity 10 International Equity 12 Fixed Income 14 Real Estate Securities 16 Hedge Funds 19 Disclosures 21 Research Team 22 RES-5101-F 6-2011v1 CINCINNATI, OH MARCH 27-28, 2012 JAMES GR ANT
Founder and Editor /
Grant ’s Interest Rate O bser ver
JEFFREY GUNDL ACH
CEO and CIO, Pr incipal / D oubleLine
T. BOONE PICKENS
Oil and G as Entrepreneur / Energy Exper t
KARTHIK RAMANATHAN
S enior Vice President and Direc tor of B onds / Fidelit y M anagement & R esearch Company (FMR Co)
K ARL ROVE
For mer D eput y Chief of Staff and S enior Advisor to President G eorge W. Bush / Author, “Courage and Consequence” / Fox News Contr ibutor / Wall
Street J ournal Columnist
POLITICS, POLICY, AND YOUR PORTFOLIO
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FEG does not support any political party or candidate.
Fund Evaluation Group cordially invites you to attend our two-day forum being held on March 27–28, 2012, in Cincinnati, Ohio. Hear from industry experts on politics, government policies, and investment strategies. Our renowned line-up includes:
2012 FEGINVESTMENT FORUM
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DEVELOPING INVESTMENT OBJECTIVESSTRUCTURING CLIENT PORTFOLIOS SUPPORT FOR CLIENT MEETINGS
sErviCing
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3As of December 31, 2011 T H E E N D O W M E N T A L L I A N C E P R O G R A M 1 0ABOUT FEg
FEG, established in 1988, is a leading national provider of investment advisory services with more than 80 employees
in five offices and approximately $31 billion in assets under advisement.3 FEG clients include endowments, foundations,
retirement plans, wealth managers and investment advisors. FEG is employee-owned and derives revenue solely from client fees, ensuring independence and objectivity.
Jere Whiteley
Vice President
Advisor Business Development (269) 720-3332
jwhiteley@feg.com
William Goslee
Managing Principal Head of Sales & Marketing (513) 977-4400
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W W W. F E G . C O M 1 1This brochure was prepared by Fund Evaluation Group, LLC (FEG), a federally registered investment adviser under the Investment Advisers Act of 1940, as amended, providing non-discretionary and discretionary investment advice to its clients on an individual basis. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser.
Neither the information nor any opinion expressed in this document constitutes an offer, or an invitation to make an offer, to buy or sell any securities.
This document is prepared for information purposes only. It does not address specific investment objectives, or the financial situation and the particular needs of any person who may receive this document.
Fund Evaluation Group LLC, Form ADV Part 2A & 2B can be obtained by written request directed to: Fund Evaluation Group, LLC, 201 East Fifth Street, Suite 1600 Cincinnati, OH 45202 Attention: Compliance Department.
HEADQUARTERs 201 East Fif th St. Suite 160 0 Cincinnati, Ohio 45202 P: 513.977.4 4 0 0 F: 513.977.4 430 w w w.feg.com