NACUBO's Business Officer, the bible in higher-education finance, recently featured Kenyon's endowment as a top performer and national model. That doesn't surprise anybody who knows members of the College's investment committee. Thanks to their acumen and access, the little school on the hill reaps big returns.

Even on a sunny autumn afternoon, Middle Ground Café hums with activity. Students, professors, townspeople, and visitors bustle in and out, popping by for a quick snack or a rendezvous, or settling into a booth, heads bent low over a laptop or book. It's the Gambier place to see and be seen, to catch up with friends and chill for a few minutes before rushing off again. It's an unlikely place to be holding a serious business conference.

Yet that's exactly what Trustee Alan E. Rothenberg '67, chair of Kenyon's investment committee, and Joseph G. Nelson, Kenyon's vice president for finance, are doing on a Friday afternoon in September. Seated at a table smack in the middle of Middle Ground, the two are focused on their agenda, undeterred by the din that envelops them. The quality of a business meeting is driven by the caliber of its participants, not by its location. Results define success, and the results of this collaboration are very good indeed.

Kenyon's endowment earned 13.3 percent on the actively managed portfolio, net of all fees, in the fiscal year ending June 30, 2006, up from 13.1 percent in the preceding year. Impressive? An article in the October 2006 issue of Business Officer, the magazine of the National Association of College and University Business Officers (NACUBO), cites Kenyon as a top-decile (10 percent) performer over the ten years ending June 30, 2005, among all endowments (about five hundred nationwide). The magazine lauded the College's farsighted and flexible investment strategies. Now the College can credibly begin to compare its results with those of billion-dollar endowments. No wonder Nelson calls it a "high-octane fund."

Rothenberg is in Gambier for a weekend of preliminary reunion and campaign planning sessions; he's squeezed in a half hour at Middle Ground to meet with Nelson to discuss investment details. The two men communicate often, e-mailing three to five times weekly and talking on the phone at least once a week.

At a larger institution, the investment committee would be less hands-on, making broad policy decisions but insulated from day-to-day decision-making. At Kenyon, it's much more actively engaged, by necessity. In addition to determining asset-allocation categories, the members select specific funds, and their choices reflect the fact that they can provide access to outstanding fund managers and great investment opportunities.

ASSET ALLOCATION
Asset Class	Target Allocation
Domestic Equity
Large Cap	7%
Mid Cap	9
Small Cap	7
International Equity
Developed EAFE (Large cap)	8
Small cap EAFE	3
Emerging Market	6
Private Equity
Venture capital	6
Buyout	6
Other	3
Equity Hedge Funds10
Real Assets
Real Estate	6
Commodities	4
Opportunistic 15
Total Equities	90
Passive fixed income	10
	100%

Kenyon's committee is small-there are only seven trustee members, all volunteers, serving without term limits. But it's a lineup with extraordinary depth, with each member bringing distinctive expertise and strength, says Rothenberg.

Consider the newest members, beginning their second full year. One is R. Todd Ruppert '78, president and chief executive officer of T. Rowe Price Global Investment, Ltd. The other is William T. Spitz, who, as vice chancellor of investments and treasurer of Vanderbilt University, oversees one of the largest university endowments in the country.

"Our investment committee members open doors for us," says Rothenberg. "They unlock opportunities that would otherwise be out of reach."

Kenyon has recently invested in two highly exclusive real-estate funds, some energy funds, and several venture-capital funds, all directly as a result of trustee connections. "We were talking about a real-estate fund we'd like to get into, and three of us said, 'Oh, I know them,'" recalls Spitz. "This is a fund that can get all the money they need from existing investors; they don't need any new ones. But a couple of phone calls later, and Kenyon had a slot in that fund. Our committee members are all very well-connected people. Someone on this committee either knows directly, or knows someone who knows, everybody in the investment world."

Nelson agrees. "They probably wouldn't even have returned our calls," he says of the real-estate fund. "The best way to get into a really, really good fund is to know someone. Money isn't enough anymore. And we don't want to be in the good ones; we want to be in the very best ones."

Just as impressive as the members' expertise and clout is the absence of ego or personal agendas in their deliberations. Meetings involve energetic debate about the pros and cons of potential investments. But at the end of the day, says Spitz, "Everybody says, 'Fine, let's move ahead. How do we do the best thing for Kenyon?'"

The group meets in person four times a year. The longest session, in the summer, is the annual due-diligence meeting, a tradition initiated by trustee emeritus and former committee chair Charles P. Waite, founder, former managing partner, and continuing general partner of Greylock Management Company in Boston. Usually held in Boston or New York City, it's an opportunity for the group to meet with specific managers and discuss hedge funds, commodities, private equity, and more.

"It is so old-fashioned, but it is so Kenyon," says Rothenberg. "We want to smell these funds, to understand them completely. Every time we lose a dollar, we drill down and ask what's driving the equation.

"I'd want any potential donor to know that we treat our money not like it's our money, but like it's our mother's money-no, our grandmother's money."

Board Chairman William Bennett agrees. "Our donors should take great comfort in the College's prudence," he says, "both in the way we manage the budget and in our investment philosophy."

Kenyon's turnaround began around 1990, when the investment committee decided to begin to make its own decisions, rather than leaving strategic implementation up to its managers. Rothenberg praises the committee chairs who preceded him-David F. Banks '65, Waite, Craig J. Foley '65, and Donald B. Hebb Jr. '64-for their foresight.

Some of those first decisions have paid off handsomely, Nelson says, such as taking a 20 percent position in international equities in the early 1990s and making the College's first venture-capital investment in 1988. A more recent change has been the addition of a 15 percent allocation for "opportunistic" investment, to respond more quickly to promising investments that don't fit into a predefined category.

"We work out decisions collegially," Rothenberg says, "making small commitments in new funds, then gauging our success and reevaluating our strategy. It's like writing music: all these tiny little adjustments are the notes on the page that make up the composition."

There are many ways of measuring success: against industry comparables, against peer institutions, against absolute return. The committee decided recently to see how Kenyon stacks up against billion-dollar babies. The largest endowments consistently outperform small and medium endowments, Spitz explains, so by measuring against peer institutions, "you can delude yourself that you're doing really well. Comparing to the big boys and girls is a better benchmark. Also, Kenyon really is competing against those folks for students and faculty."

"We're never going to beat Yale," admits Rothenberg. But Kenyon's results stand up surprisingly well against larger endowments. During the fiscal year ending June 30, 2005, Amherst, with $1.15 billion, notched a 19.3 percent one-year return, and Smith, with $1.035 billion, earned 16.1 percent. But Williams, with $1.35 billion, earned 12.4 percent, and Grinnell's $1.39 billion earned only 10.7 percent.

Over a longer term, Kenyon's rate of return looks equally good. In the ten years ending in fiscal year 2005, out of 463 endowments, Kenyon had a return of 12 percent, landing in the top tenth. Amherst and Williams were both at 14.4 percent.

But rate of return isn't everything. Total endowment size matters, too. The issue is opportunity cost. As of June 30, 2006, Kenyon's endowment was $164,597,000 or $100,842 per student-less than half the figure of any of its peer institutions. Every dollar generated by endowment is one less dollar Kenyon must obtain from tuition. Currently, the endowment provides 5.58 percent of the College's annual operating budget. Without the ability to generate more of those dollars, Kenyon can't compete as well for the best students and faculty.

The investment committee must build the soundest possible financial base for the College to achieve its objectives. "Whatever resources are entrusted to us, we want to maximize the return," Rothenberg says. "We're all pretty pessimistic and assume there will be a lot of rude shocks. There's no way to be bulletproof. But we're doing this in an intellectually honest fashion, and the results are proving that we're doing the right thing. We're way too dependent on the endowment to let it be stagnant."

On the wall of the conference room in the Eaton Center, where the investment committee often convenes, is a brass plaque that reads "Joseph G. Nelson Rebalancing Room." "Rebalancing" is the process of maintaining the desired mix of stocks and bonds, say, in a portfolio. If the mix is to be 50/50, but stocks outperform bonds in a given year, then some stocks need to be sold, and more bonds bought, to restore balance. The more complex the mix of assets, the more frequently rebalancing must be performed.

The plaque's tribute is richly deserved. "Joe's very conservative. That's part of the reason we're in such good shape," Rothenberg affirms. Trustee emeritus and former chair of the committee Waite concurs. "Through all of this transition, the most important resource that we had was Joe Nelson. Joe could just as easily be vice president of finance at Harvard or Princeton or Stanford as at Kenyon. Joe is a manager. He knows how to get the best out of people, how to stay on top of things, how to put record-keeping and decision-making processes in place."

Nelson has been devoted to Kenyon's financial health since he first came to work here in 1978, and managing the endowment is his passion. "It's the area I've always been interested in," he admits. "I like to be around investors. They're risk-takers; they have confidence in themselves." Nelson may be on the road three times a month, meeting with current and prospective managers, attending investment conferences and seminars, and making contacts.

The College's internal financial team is always considering how to improve the portfolio and its structure. Teri Blanchard, associate vice president for finance, and Nelson regularly discuss opportunities of sufficient merit to take forward to the investment committee. "Teri's input is extremely helpful to me in honing in on various strategies that will complement our portfolio," Nelson says.

On their watch, the College has clearly prospered. For example, Standard & Poor's recently upgraded Kenyon's bond rating from A to A+. "They love our admissions selectivity, our management team," says Nelson. "They love our thirty-six years of balanced budgets. They love our capital campaigns. They take all of that into account."

Bill Spitz is an industry superstar, a genuine icon. At Vanderbilt, he directs the twelfth-largest endowment in the country. As a member of Kenyon's investment committee, and as a former member of the budget and finance committee, Spitz has seen firsthand how fiduciary decisions are made. "The Kenyon portfolio is a very sophisticated structure. It looks like the big endowments; it's in many of the same investments as the big endowments," he says. "I have a great feeling about the stewardship of the money here. When I make a donation at Kenyon, I know that every dollar is going to be used to further the mission.

"People who are on Wall Street have a feeling after a lot of years that they have been just shuffling pieces of paper," Spitz continues. "The wonderful thing about being associated with an endowment is that you can look out the window and see what you've done. You see the kids on scholarships, the professors, the buildings that are there because of the money you've earned. You're dealing in an intangible world, but there are real, tangible benefits."

Perhaps that's why, on a sunny September afternoon, Rothenberg and Nelson sit in Middle Ground Café, surrounded by the proof of their success and firmly focused on Kenyon's future.