Donna Dean (MBA ‘78) believes in being prepared. To that end, Dean, chief investment officer of The Rockefeller Foundation, had for years led an annual scenario analysis and test to forecast how a downside market might affect the $3.2 billion endowment that she manages. But the emergency preparedness exercise focused on a market decline over three years. “When the crisis actually came, the worst of it happened in three months instead of three years,” she notes. “The key challenge during the crisis was making sure we had enough liquidity to meet our funding requirements.”
The foundation needs cash for the $170 million it provides annually for grants and other charitable spending as well as additional liquidity to fund commitments made to the private partnerships that make up part of its investment portfolio. Dean had been focusing for many years on increasing the foundation’s investments in less liquid investments. When she took over her role in 2000, 20 percent of the foundation’s portfolio was in alternative investments, including private equity, real assets and hedge funds. Now, more than 50 percent is in alternatives. Fortunately, as this shift occurred, she was also focusing on liquidity.
“By developing a plan, we realized we had to maintain a higher allocation to fixed income than some of our peers. Our target was 12 percent, and we kept it all in treasuries, so we weren’t exposed to credit risk when the credit markets froze up and became illiquid. We also put in place a line of credit we were able to use to pay grants. That gave us more flexibility around the timing of liquidating investments to raise cash.”
Another important step that Rockefeller took, as the markets flourished running up to the recession, was to keep the foundation’s spending relatively stable. The foundation didn’t increase its budget as much as some spending formulas would have allowed. As a result, it did not have to cut back on the grants it provided post-crisis as many other nonprofits did.
As Dean guides the investment decisions for the foundation’s endowment, her primary focus is on financial return. However, she also has an eye toward impact investing, those investments that have both a financial return and social impact. Dean said that her office has found investments in clean technology and the renewables space that meet financial due diligence requirements and have a positive social impact. She also serves on the foundation committee that oversees program-related investments, which are an alternative to grants.
“If you can provide funding to a mission-oriented entity in a businesslike way with the expectation that they can return the capital with the potential for some return, that is sometimes a superior model to making a grant. It helps the entity become sustainable.”
Investing in teamwork
When Dean arrived at UNC Kenan-Flagler, she believed the most important things she would learn were financial and analytical skills. She actually found what the School taught her about focusing on the interpersonal dynamics of organizations to be crucial to her career.
“Being a good CIO is not just about having particularly unique economic insights,” she notes. “It is about assembling a great team that has complementary skill sets. When I took on the role of CIO, I really felt it was important to be able to run a successful investment operation with an environment that was different from an investment bank and appropriate for a foundation. I wanted a positive, collaborative environment, and I wanted to prove that we could still generate strong investment results. We’ve done that and have been in the top quartile of large foundation peers for the past seven years.”
The collaborative environment that Dean sought to instill in her team was particularly useful during the financial crisis.
“I involved more broadly all the members of my team in conversations about issues like managing liquidity and cash flow planning. Everybody was willing to pitch in and do whatever was necessary to make sure that we did the best possible job for the foundation.”