Tenures should be long enough to ensure consistency and accountability for decisions, but limited to ensure vibrancy. It is important to have the flexibility to renew or extend terms so that the services of excellent committee members are retained. And when it comes to consultants, only those with spine should make the second interview. “Yes-men are useless and poodles come cheaper,” Kennedy says.

Smaller funds that have come late to alternatives can learn much from the successes of the elite endowments and the mixed results from the mainstream’s charge into the sector. The investments and capital management division of The University of Sydney, which oversees approximately $1.1 billion, including an endowment component worth approximately $700 million, initiated its alternative investments program towards the end of 2006. Its director, Greg Fernance, agrees that the endowments’ asset allocations can or should be adopted effectively by other institutions; rather, it is the qualitative attributes that should be interpreted and applied where appropriate.

The university’s investment and commercialisation committee oversees the management of Fernance’s division. Among its members are the chief investment officer of MLC, Chris Condon, the co-founder of CHAMP Private Equity, Joe Skrzynski, and the managing director of boutique incubator Pinnacle Investment Management, Ian Macoun.

While it does not constitute an endowments-esque alumni network, these professionals have knowledge, contacts and networking ability that can benefit the endowment. “We rely on their knowledge and expertise in what we are developing,” Fernance says. To date, however, the committee has not broken open relationships for the fund. Opportunities have arisen, open also to other institutions, in which the division has invested. These include an allocation to Makena, which was introduced to the university by specialist alternatives placement agency Brookvine, in addition to unlisted domestic and global infrastructure, equity long/short and, most recently, private equity secondaries through US manager HarbourVest.

Alternatives comprise between 17 and 20 per cent of the division’s long-term portfolio, which is comprised of gifts and endowments accrued over the decades and accounts for 70 per cent of its total funds, which are invested in growth assets, including farmlands. The remaining 30 per cent represents the short-term portfolio, which is managed internally, and is invested in short-term debt instruments. “We’ve been careful,” Fernance says. “Not just any alternative will do. And when you find the right alternative, not just any manager will do.” The division now has enough funds under management to warrant an expansion of its internal team of five, he says.

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