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Business Officer Magazine

Database Profiles Funds

With more sessions to choose from than any other category, this track surveyed current issues and best practices in business office core functions.

Due Diligence for Alternative Investments

Throughout the last decade, higher education institutions have continually increased endowment portfolio diversification to protect against conventional market declines by investing in alternative investments. These types of investments include hedge funds, venture capital, and private equity funds, to name but a few, and are not publicly traded. Although colleges and universities invest in alternatives to protect the institution from the downside risk associated with conventional market investment declines, alternative investments can be complex, risky, and difficult to value.

The increasing volume of such investments—combined with complexity, risk, lack of publicly available prices, and rigorous audit valuation requirements—has increased the amount of audit time and expectations. Considering severe market declines and worldwide liquidity challenges beginning in the later part of 2008, auditors may be spending significantly more time examining the valuation attributes of these portfolios. Emory University, Atlanta, should be ready.

Debye Alderman, Emory's assistant controller, helped participants in the session “Monitoring Alternative Investments” understand the rigor and due diligence needed to monitor such investments. Emory University has developed an internal database that houses every possible informational attribute for hundreds of alternative investment funds. Examining and analyzing attributes such as investment industry, geography, audit firm, fund managers, management personnel changes, capital calls, distributions, and so on, contributes to a profile of reliability.

At Emory, such information is shared among designated individuals in the controller and investment offices; each must sign a confidentiality statement. The database and rigorous monthly processes have reinforced valuation results, substantiated risk profiles, and helped auditors understand how investment managers value such investments. Ultimately, this understanding has saved time and reduced auditor, management, and governing board concerns.

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