The University of Colorado Foundation Digs Deep Into Its Hedge Funds, and That Due Diligience is Paying Off
INSTITUTIONAL INVESTOR’S ALPHA • APRIL 2007
By Emma Blackwell
When it comes to investing in hedge funds, Christopher Bittman leaves nothing to chance. As chief investment officer of the University of Colorado Foundation, Bittman hires private investigators to do extensive background checks on prospective managers for the endowment.
“At the end of the day, you’re hiring people,” says Bittman, 43, who believes that learning as much as possible about managers is critical when choosing hedge funds.
The CU Foundation’s $820 million portfolio has experienced significant growth since Bittman began overseeing its alternative investments in 2000. Alternatives now account for 37 percent of the assets — $303 million — up from the 16 percent allocation the foundation had in 2000. Hedge fund investments represent 16 percent — $131 million — an allocation that Bittman is considering
boosting over the next few years.
A 1985 graduate of the University of Colorado, Bittman joined the CU Foundation’s investment committee on a volunteer basis in 1997. At the time, he was a senior vice president at Oakland, California–based money management firm Jurika & Voyles. In 2000, a year after he was promoted
to president and CEO of Jurika & Voyles, Bittman was appointed chairman of the CU Foundation’s new alternative- investments subcommittee. On his watch the portfolio made its first foray into hedge funds in 2001 — a move designed for diversification and risk reduction. A year later Bittman was named chairman of the investment committee, making him the obvious choice when the board of directors decided to hire a full-time CIO, in 2004.
The committee maintains control of the endowment’s investment policy and target allocations, but Bittman and his staff of four have the freedom to select managers and decide how assets will be divvied. “The committee effectively turned over the keys to the car when I came in,” he says.
Bittman believes hedge fund investing is worthwhile only if the CU Foundation can access top managers capable of delivering consistent returns. To determine that, he and his team assess managers against roughly 30 metrics, including the number and size of trades that contribute
to a fund’s profits, the range of leverage used to generate profits and the volatility of returns compared with similar funds.
He also looks closely at more subjective measures, seeking managers with personal funds invested in their portfolios and whose personalities demonstrate signs of humility — a quality he says is indicative of managers’ willingness to cut losses. Bittman digs into firms’ disaster recovery plans and reviews what sort of succession plans are in place in case key individuals are incapacitated. “We want to know how healthy people are,” he says, adding that such thinking may seem callous but is necessary when investing long term.
Two of the CU Foundation’s first three investments were to multistrategy managers — $10 million each to Och-Ziff Capital Management and Satellite Asset Management and the third, a $20 million allocation, to longshort manager Maverick Capital.
Bittman says he chose the New York–based firms because of the strength of their investment strategies and their track records in varied market conditions. “It was a risk-reduction strategy,” he notes.
In October 2004, Bittman allocated $20 million each to New York–based Eton Park Capital Management and San Francisco’s Farallon Capital Management. Then last year he and his team branched into fixed-income arbitrage, allocating $25 million to Boston-based Convexity Capital Management, which had just been launched by former Harvard Management Co. president and CEO Jack Meyer.
“We want to form long-term partnerships with other bright investors,” says Bittman, who moved to Boulder, Colorado, in 2005 with his wife, Kenda, and their five children.
Bittman’s rigorous investment process has paid off. For the five years ended December 2006, the CU Foundation’s hedge fund portfolio had an annualized return of 10.53 percent with little volatility. (Its standard deviation was just 4.77 percent.) By comparison, the Standard & Poor’s 500 index returned 6.18 percent during that time, with a standard deviation of 15.24 percent.
When the CU Foundation asked him to be its first CIO, Bittman had taken an early retirement following Jurika &Voyles’s 2003 merger with Boston-based Loomis, Sayles & Co. — both of which were already subsidiaries of Bostonbased Nvest (now IXIS Asset Management).
“I wasn’t looking for this job, but when your alma mater comes singing the fight song, it’s hard to say no,” he says.
