30   in 30

by Donna Klinger
reprinted from Business Officer, October 2001

When George Keane opened Commonfund's first office on Madison Avenue and 59th Street in New York City in 1971, his desk was a door with stacked boxes as legs, and the nonprofit investment organization had two employees, 72 clients, and $63 million under management. Today the organization, headquartered in Wilton, Connecticut, has more than 200 employees, 1,500 clients, and $30 billion under management. How did Commonfund grow to a $30 billion entity in 30 short years, and where is it headed today? Donna Klinger recently spoke with the firm's top management about their vision and plans for Commonfund.

Rest assured that Bob Bovinette, Commonfund president and chief executive officer since 1996, does not have a desk assembled from a door and boxes, but he may get as little sleep as Keane most likely did in the early days. Bovinette confesses that he's concerned about the current competitive dynamics in the investment industry. "Not a day goes by that I don't worry about strategic directions," Bovinette says. "We have a desire to maintain our preeminent position as an investment provider in the nonprofit marketplace."

Commonfund is the largest investment manager for educational endowments in the United States, and it intends to keep its position. To stay on top, Commonfund has invested considerable resources in infrastructure and has expanded into related fields in recent years. The staff has grown by one third in the past two years, and assets under management have increased by 20 percent in the same period. Consider the following:

• Commonfund now has four wholly owned subsidiaries in the investment arena:
  Commonfund Asset Management Company, Inc. (marketable and alternative asset classes),
  Commonfund Capital, Inc. (private capital),
  Commonfund Realty, Inc. and
  Commonfund Securities, Inc. (a registered broker-dealer).
• Two other wholly owned subsidiaries provide noninvestment-related services:
  Commonfund Treasury, Inc. offers treasury management services, including a payment card program; and
  Commonfund Netsolutions, Inc. holds the organization's investments in online receivables management services.
• While Commonfund principally serves colleges, universities, and independent schools, it has recently expanded its mandate to provide similar support for not-for-profit hospitals, foundations, and other public benefit institutions. Nearly 100 have signed on to date.
• Commonfund this year expanded beyond U.S. borders. Commonfund Canada, Inc. offers investment advice and products specifically designed to meet the needs of the higher education and not-for-profit markets in Canada.

 From the beginning, says John Griswold, senior vice president, "Commonfund has operated in a culture of innovation." The organization's very establishment was innovative. The Ford Foundation provided a grant to establish an organization to serve the needs of colleges and universities through the pooling of their investment funds. This made Commonfund the first firm to develop a multimanager style to gain diversification for the endowment market. George Keane and his staff needed to be creative in the early days. For the first several years of the fledgling organization's existence, a nasty bear market was fully entrenched. "It was a terrible time to start," recalls Keane, now retired. "It was a tough time."

However, the organization survived and continued to innovate — as an early active manager of operating and cash reserves (1974), an early leader in diversifying equity portfolios using a hedging strategy (1982), an early leader in direct real estate investment (1982), an early investor in international equities (1983), an early investor in emerging markets (1988), a creative manager of international private equity (1989), an early entrant into the high-yield market (1990), and a conduit to link commercial banking to cash investments (1997). And that's just a partial list.

"Our model is to fit what the market is looking for, to fulfill demand," Griswold says. He points to the organization's programs in private capital and real estate as examples of results of talking with and listening to clients. "We've become better active listeners," Bovinette adds.

Culture Shift
Bovinette explains a shift at Commonfund, prompted by changes in customer demands. In the 1980s, Keane and his approximately 30 employees were committed to client needs and were inspired by the nobleness of their mission. But now Commonfund's 200-plus employees operate in an even more client-centered environment. Today's clients, according to Bovinette, are more sophisticated and demanding, with higher expectations regarding reporting and access to data. They're also less patient if a service or product fails.

Bovinette sees client focus as being central to the organization's strategy for future growth. He defines client-focused organizations as those that build capacity ahead of growth, actively listen to clients, foster an open and collaborative environment among clients, build a structure and products that are transparent to all clients, help clients achieve their mission, and invest in information technology.

"It's insufficient to have satisfied customers," Bovinette says. "They don't give you ground just because you're a not-for-profit, low-cost provider. They're going to go elsewhere if your service isn't top notch, and there are a lot more alternatives today than in the past. We're competing against giants."

Room — and Reason — for More Growth
Some would say that Commonfund is becoming a giant, and Bovinette and Griswold do see ample opportunity for growth. They point to the taxable subsidiaries and the broader for-profit market as the areas being pinpointed for expansion. By reaching for business in the broader nonprofit marketplace, Commonfund has tripled its "playground." However, the team expects any expansion to come within the organization's core competency areas. They considered entering the pension business but decided not to pursue it because it was outside of their arena and the marketplace is already crowded.

"It is important to us — and our clients, both old and new — that Commonfund continues to be a growing organization," Bovinette told clients gathered at the Commonfund Forum last March. "Growth provides us with the financial resources to reinvest in infrastructure, technology, research, education, risk management initiatives, and development and improvement of investment funds," he said. And he acknowledged the need to build Commonfund's size and strength so that the firm can remain viable in a market marked by industry consolidation.

In addition to reaching out to the broader nonprofit market, Commonfund is growing its financial services businesses in treasury management and e-receivables. For example, in the treasury services area, Commonfund now has 16 percent of the market share, compared with 13 percent three years ago, and a goal of 25 percent.

Bovinette and Griswold circle the conversation back to the heart of their organization-being client centered. "At the end of the day, if we're able to hire, retain, and grow highly talented people who will drive customer loyalty and satisfaction, we will succeed," Bovinette says. "We're dedicated to creating a climate that promotes collaboration and teambuilding across the enterprise."

Commonfund has achieved 30 in 30. Will it be 400 in 40? The clients and the market will decide.

After spending its first decade in New York City, Commonfund moved to Fairfield, Connecticut in 1981, subsequently buying its own building in Westport in 1987. But, a decade of growth created crowded conditions. As a result, in 1999, Commonfund moved to its current headquarters in the neighboring town of Wilton.

Commonfund's Clients
Endowments of more than $1 billion		25
Endowments of $1 billion-$500 million		66
Endowments of $499 million-$100 million		196
Endowments of up to $100 million		1,000

Author Bio
Donna Klinger is editorial director of Business Officer and director of publications at NACUBO.