Where the expertise usually sits

From the firms I have looked at over the years, the deep skills tend to be:

• Fund manager selection and monitoring
• Public equity and fixed income
• Credit and bond portfolios
• Portfolio risk and reporting

The thin spots tend to be:

• Hard assets such as timber, farmland or physical commodities
• Asset-based lending
• Real estate owned directly rather than through a fund
• Direct investments in private companies

There are exceptions. But you should assume the gap exists until a firm proves otherwise.

Endowments own odd assets

Endowments get gifts that don't fit a model portfolio. A donor leaves land. An alum gives shares in a private company. A board-designated fund owns a building the school leases out. Some institutions also hold real estate they manage themselves. Rice, for example, reports that its total endowment includes directly held real estate managed outside its investment company.

Those assets still have to be valued, insured, managed and eventually sold.

How families handle it, and what endowments can copy

The families I worked with that used an outsourced CIO kept real estate and direct deals in house. They then kept the outside firm updated on big changes so it could see the full risk picture.

Endowments can do the same:

1. Carve the odd assets out of the OCIO mandate in writing.
2. Name who owns them. A real estate committee, a staff member or a specialist adviser.
3. Send the OCIO a short quarterly summary so its risk reports include everything.

Questions to ask in the pitch

• How many clients do you manage direct real estate or private company stakes for?
• Who on your team has actually closed a direct deal?
• If we hand you a gifted asset, what do you do in the first 30 days?

Vague answers tell you where the gap is.