Why a Singapore university endowment chose complexity over caution
When Singapore Institute of Technology (SIT) set out to establish its endowment fund in 2014, Chief Investment Officer Tan Li Ping made what many might consider a bold choice — to bypass the traditional conservative approach to portfolio construction typical of new endowments.
Tan, who joined SIT in 2013 to help lay the groundwork for the fund, took an unconventional path from the start.
"Since we were new, we considered starting with a 60/40 domestic equities and bonds portfolio," Tan said at AsianInvestor's 14th Southeast Asia Investment Forum in Bangkok on November 8.
"But our first chairman was very supportive of my vision and over several conversations, they too felt — why should we waste time starting at point A when we really want to go to point Z?"
SOPHISTICATED FOUNDATIONS
The endowment spent its initial year laying critical groundwork, with Tan consulting peer universities and investment experts before receiving any capital.
SIT Endowment
"They were helpful in giving advice on how they thought about their investment objectives, how they set up their business models, what worked for them or what didn't work for them," she said.
This preparation enabled immediate implementation of a diverse global portfolio, including hedge funds and private assets, said Tan.
Today, the fund maintains remarkable efficiency with fewer than 30 managers across all asset classes.
"It's a deliberate choice because we want to be efficient, and each manager should be contributing meaningfully," Tan explained.
"We approach our public fixed income and equity more passively, spending more time in the alternative space where we can maximise alpha."
RISK FOCUSED
Despite its advanced approach, the endowment maintains stringent risk controls, with quarterly stress testing and scenario analysis forming the backbone of its risk management framework.
This conservative stance reflects the priorities of its governance structure, which includes former senior executives from Singapore's sovereign wealth fund, GIC.
"One of my investment committee members was an ex-GIC chief risk officer, so risk naturally comes up as a number one concern," Tan said. "Every quarter, we report our stress scenarios, drawdown scenarios to make sure the portfolio is comfortably within their risk appetite."
"We stress test all the time," she added. "We take a 30% haircut, we assume all our capital calls are made, and we have to pay out in the most painful situation."
The fund's risk appetite is particularly shaped by its board's preferences.
"Our Investment Committee and board have less tolerance for losses versus upside. They're not concerned if you make only 10% when markets are up 20%, but they are highly sensitive when you have a drawdown situation."
PRIVATE MARKETS
The endowment's journey into private markets illustrates its measured approach to complexity over conservatism.
Starting with a modest AUM of $250 million (S$336 million), the fund initially accessed private equity through fund-of-funds for diversification.
"As our assets grew, we were able to add secondary managers, and today we also have co-investment managers that are one layer of fees but diversified GPs," Tan said.
"For our private credit program, which started about three years back, we felt comfortable going directly to GPs, spanning strategies from mezzanine to senior lending and asset-backed financing."
OCIO LESSONS
Perhaps the most valuable insight from the endowment's decade-long journey came from its early experience with outsourced chief investment officers (OCIOs), said Tan.
In its resource-constrained early years, the fund significantly relied on OCIO managers. The results proved disappointing.
"The experience has been mixed," Tan said. "They had not achieved the alpha that we expected, even though there was a lot of diversification within the portfolio."
This experience led to a strategic shift in approach.
"I would put more resources in building up a team earlier on and hiring fit-for-purpose specialists in each of the asset classes, rather than having a general manager charging double layer fees but not really being an expert. It's a lot easier to remove a manager that's not performing, or to add managers that are better over time when you have direct control," Tan said.
SIT endowment's journey offers valuable lessons for other institutional investors, showing that advanced investment strategies can work from day one if implemented properly.
"I think it's important to listen to your stakeholders," Tan emphasised.
"You must have a robust discussion and understand where they are coming from, and then you can decide where you want to land on the frontier."