USM Foundation

A Message from Sam Gallo, Chief Investment Officer

on May 5, 2020 by USMF Staff
Sam Gallo Chief Investment Officer

I would first like to convey my sincere concern for our campus colleagues, students, faculty and staff, donors and peers during this unprecedented crisis. These truly are uncertain times and we wish you all the best as we weather this storm together. As the pandemic evolves, we continue to monitor global financial markets and their impact on our endowment and operating portfolios. Here are a few key points we wish to communicate to our campus communities about the endowment:

  • Long-Term Horizon – We are a patient, long-term investor; in fact, our time horizon is perpetuity, much longer than most other investors. As a result, we look far beyond the current market disruptions as we construct and manage the portfolio. Short-term performance is not indicative of the health of the endowment.
  • Endowment Purpose – The endowment has two purposes: to provide consistent, annual income to campuses to spend on students, faculty and facilities; and to pursue growth in order to maintain purchasing power for future generations. Most endowment assets are restricted, which means that the income may only be spent for the purpose specified by the donor (e.g., scholarships).
  • Win by Limiting Losses – Market ups and downs, or volatility, are an inescapable element of investing. While large market upswings are welcome, a portfolio that rises with the upswing may reflect greater risk and is usually accompanied by larger downswings when markets decline. Remember, market ups and downs are not symmetrical; a 40% decline requires a subsequent 67% increase to get a portfolio back to its starting value. Managing the endowment to avoid significant ups and downs and to provide consistent returns are critical parts of our investment process.
  • Public Equities – The endowment is designed to have a reduced exposure to public equity markets (e.g., S&P 500). As a result, when these markets charge ahead, the endowment will be a bit behind. Conversely, when these markets come back to earth, the endowment should not fall as far. We intentionally give up some “upside” in order to protect the “downside,” when a market decline inevitably occurs.
  • Diversification – Another tool that we use to manage volatility is maintaining a globally diverse portfolio of investments that behaves differently under dissimilar market conditions. Our goal is to have portions of the portfolio moving in different directions and at varied speeds, with the net result being consistent returns. Our Investment Committee and strategic partners help our investment team select exceptional managers with the experience to take advantage of opportunities and to protect capital through most types of markets.
  • Liquidity – We are maintaining a larger-than-normal level of ready cash, primarily so that we can take advantage of a wide range of opportunities at much lower prices than before the pandemic. Given our long-term horizon, we are optimistic that these opportunities will bear fruit in the future.

In closing, we believe that we have constructed the endowment to endure, and hopefully to thrive, in the current market environment. We will get through the pandemic, and we are confident that the endowment will continue to be a source of support to the University System of Maryland and the other Maryland higher education institutions that we serve. I wish each of you continued strength, courage, and patience as we navigate these challenging times together.

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