Alice Handy takes stock of U.Va.'s endowment

By Rebecca Arrington

Q&A
Most people would find the responsibility of a billion-dollar investment portfolio overwhelming. Alice W. Handy, U.Va. treasurer and president of the University of Virginia Investment Management Company (UVIMCO), finds it nothing short of "invigorating." From her new Fontaine Research Park office, which resembles a trading room floor, she recently shared the philosophy behind U.Va.'s endowment, which under her direction the past 25 years has grown from $60 million to $1.5 billion, and what she expects the investment future to hold.

Q: Can you describe your management style and a typical day at your office?

A: We start bright and early, around 7:30 a.m. ... My day typically goes from just before 8 a.m. to 6 or 7 p.m. ... The first thing we do is turn on the TV and see where the markets are. Actually, my day starts at home by watching the news on CNN ... making my kid's lunch, walking the dog, and then coming here. ...

Every Monday morning we start with a staff meeting to find out what everybody's plans are for the week. ... Then I spend the rest of the day trying to research new ideas, hire personnel, plan space, [and] think about the next investment strategy. ... We spend a lot of time talking to managers.

Right now we're working very hard on our ventures portfolio. Š It used to be 4 percent of the [entire] portfolio. But because of what's going on in the market right now, venture capital makes up roughly 25 percent of [the] endowment. ... I now have two people working full-time to manage the distributions as they're coming in -- [to] sell them, to reconcile the portfolios, to value [them] on a daily basis. Those are [huge changes].

Q: How many employees are on your staff?

A: We have 11, three of whom because of family reasons are working three-quarter time.

Q: Can you explain exactly what the endowment is and its importance to the University?

A: We call the University endowment the margin of excellence. It provides funds necessary for outstanding academic programs and related cultural and athletic activities above and beyond those appropriated by the commonwealth. ... U.Va.'s endowment is in the top 25 endowments in the nation, and it's fifth among public universities, exceeded only by the Texas and Texas A&M universities and the California system, all of which are significantly larger.

Q: What is the endowment total now?

A: By the end of January, we're estimating the endowment will be approaching $1.5 billion.

Q: What's the most the University's ever made in a day on its investments?

A: Well, this isn't realized yet, but the most that U.Va.'s public section of the venture capital portfolio made in a day is $17 million, though it just as easily could lose that much due to the volatility of this market. ... We have one stock in the portfolio right now that has been worth as much as $100 million, which we bought three years ago for $500,000. These are just examples -- extreme examples, but they show the kind of mania that we're dealing with in the marketplace right now. ... However, our investment focus and time frame is long-term, five to 10 years.

Q: Is there a target dollar amount or percentage rate that U.Va.'s endowment needs to meet?

A: Our overall objective for the fund is to increase the endowment by the rate of inflation, plus what we spend from the endowment -- inflation plus spending -- which is what we're loosely translating into a 10 percent growth every year. ... We spend roughly 5 percent of our endowment annually, so in that area we believe that we can maintain the purchasing power of the endowment so that tomorrow's students will get the same benefit as today's.

Q: If returns on endowment investments this year are 15 percent, and 5 percent is being spent, is 10 percent being reinvested?

A: Yes.

Q: Does the University invest in socially conscious businesses?

A: Our major concern is that we are responsible for protecting the value of the endowment, growing the value of the endowment. ... We believe that the companies that we [invest with] will be socially conscious, enlightened companies. And we did have a rather elaborate proxy voting committee policy of actively managing our proxies in the late 1980s when [apartheid in] South Africa was a big issue.

Q: You were hired as U.Va.'s first investment officer in 1974. The endowment at that time was $60 million. Can you give a brief summary of the investment history at the University since you've been here.

A: Up until the late 1960s, the Board of Visitors actually made the individual decisions on what stocks to buy and sell. ... In the late '60s, they hired one manager, John W. Bristol, to make the decisions for them. It was really the beginning of having a system at the University where external managers are hired to make all the decisions on the endowment and still report directly to the board's Finance Committee.

In 1974, the stock market had been going down almost steadily for two years. The board made the decision ... to diversify rather than exit stocks. ... They decided to hire four managers ... and to keep the endowment invested 75 percent in stocks, which was an extraordinarily high level relative to our peers at that time. ... When I came on in '74, all of this had been accomplished.

In early 1980, we decided to diversify the portfolio away from just stocks and bonds and thought we were big enough to go into some other asset classes. There were three in particular that were developing a lot of attention at that time. One was real estate. The second was international stocks, which up until then very few endowments invested in at all, which seems hard to believe now, and [third] was venture capital. We did the teeniest little investment in venture capital, which also seems hard to believe now. ...

Following the 1987 crash, everything changed in the market. First, there became a belief that you don't have to worry about a crash because it will rebound right away, which is what it did. A false belief, but more than that, international became more widely accepted as an asset class, [and] ... all kinds of new asset classes [emerged]. ... What really grew up were two industries that we didn't really have before Š the hedge fund industry and the private equity industry.

In the '80s the markets were truly wonderful. ... It was something in the [neighborhood of] 15 percent. We normally think of long-term returns in stocks as being 10 percent. ... Instead of the '90s being worse than the '80s, they were even better. The stock market went up tremendously, [but] we were postured more conservatively because we had locked into these asset classes that long-term cyclically should do better than stocks. They didn't do better during the mid-1990s [because of the soar] in the stock market until .. our venture capital portfolio took off. We [have] had some absolutely phenomenal gains that have wiped out in the last six months all of our under-performance during the whole [10] years, and those are the kinds of things that you hope for.

Q: So the current breakdown is 80 percent stocks and 20 percent bonds?

A: Right. ... One year ago, the Finance Committee delegated all responsibility for the endowment other than actual guidelines and policy statements to ... its subcommittee, known as the University of Virginia Investment Management Company. ... The intent behind UVIMCO is to provide continuity to the management of the endowment Š and to get outside ...investment expertise to the board. Š This was the first time that we had ever had outside members. ... They are not voting members, although the chairman is very careful to consider their opinions. ... Bill Goodwin, as chair of the Finance Committee, is automatically the chair of the UVIMCO board. ... It's been wildly successful in that for the very first time we have people who understand well the strategies that we're talking about before we go in. So for my purposes, it's really provided a whole new source of [inputs] into how we think about issues.

Q: How many members are on the subcommittee?

A: Ten. Five Board of Visitors members, plus four [board of visitors-appointed] alumni who also are in the investment business Š and the ex officio member, who is the president or his designee. Right now, Leonard Sandridge serves as the ex officio member.

Q: And what is your role?

A: I am president of the company, and all of my staff serves on the company. I also jointly hold the title of treasurer of the University, and one of my staff members, Rob Freer, is assistant treasurer. [UVIMCO] sounds like it's incorporated, but it's not. It's a department, like any other at the University, but it does have a direct report to its board.

Q: Do you want to make any predictions about the investment future?

A: Well, let me take that a little differently. We're working on several major strategies right now. Š One is obviously technology. Š We've hired a hedge fund manager [to work with] specific technology portfolio for us. In addition, we have a significant venture capital portfolio. Second Š we think there are two major foreign [opportunities]. One is Asia, which was beaten down so badly a year ago that we think there's extraordinary opportunity over there. [The other is consolidations in Europe.]

When we talk about predictions, I guess what I'd say is, we know a couple of things. We always look at history to try to give us some insights, because it's all that we have. We know historically that markets are cyclical, and we know that we're in a huge technology bubble right now. I believe that there is a huge change going on in the world, caused by technology, and that we're all going to be doing business differently.

What we also know from history is that [only] a very small portion of these technology companies out there right now will survive, and the winners may actually not even [exist] now. So we know that we need to make extraordinary [decisions] in the way that we approach it. ...We think all the time about it, but we also know that we need to lock in [profits] whenever we can because [that particular area of the market is so volatile].

Q: What made you decide to major in economics and go into business?

A: I had a very flamboyant economics professor at Connecticut College who was just wonderful. So I ended up majoring in it. ... I graduated from college in 1970, and of course we were in the throes of the Vietnam War. ... I went to an insurance company, and they asked me what I wanted to do. I said I wanted to work with people, because it was 1970 after all. They saw that I had an economics degree, and they had no female executives. ... So they shot me up to the investment department.

Pure luck, although I was always interested in investments. I had a choice between being a bond or stock analyst. I didn't even know enough to say which one I wanted to be. But they ended up putting me in bonds, which was the best decision, because within four years, I was managing a multibillion-dollar portfolio. Four years later I came here, and as you know, we do have some bonds, but it's mostly stocks. I made the transition, though.

I do equate investment business to being a lot gut reaction and a lot liking people. I don't think I was so far off when I said I wanted to work with people. You obviously have to understand what you're doing, but you really do have to be able to harness the resources that are out there. I think that's what I do best. It's not being the smartest person and always coming up with the best ideas. It's knowing who to get the best ideas from.

Q: Do you have any tips for the small-time investor, perhaps a U.Va. employee who has $1,000 to invest?

A: Whenever an individual asks me, I always say to them, "If you really don't get excited about opening the Wall Street Journal and looking at it every day and wanting to have that excitement in your life, then [stick to a mutual fund plan]." For those who choose to buy individual stocks, I tell them, "You need to be as much in stocks as you feel comfortable being in, recognizing that this is a huge bubble and nobody knows when and if it's going to burst. Š Otherwise, stay with your plain-vanilla, big stock funds and bond portfolio. And don't look at it every day." ... I also tell people if they want to buy individual stocks, buy something they know.

Q: What legacy do you hope to leave?

A: My legacy will be an endowment that is among the best of a major university when I walk out of here. I want it to be well run. I want it to be a model portfolio. I want to have mentored my staff so that they're capable of taking better jobs. ... I want people to come looking here for the best people that they can find in the business.

Q: Has your perspective of the University changed since two of your three children now attend U.Va.?

A: Yes. I've seen the whole other side. Š And I have thoroughly enjoyed that -- getting to know the other kids that my kids hang out with at U.Va. I have a much greater appreciation for the operations people and how they work, and I'm much more interested in the academic side and how it comes forward. I guess what I'd say is, it's really nice to know that you're working for such a good cause. There's something about that that's fun and it's reinforcing ...working for a not-for-profit organization.