My current view of the investing environment, mainly applicable for foundations and endowment funds.

1. Roger&Beutler,&CAIA& rogerbeutler@yahoo.com& 858920594244&
Investment Perspectives August 2015
&
The&last&three&months&ending&July&have&been&pretty&rough&on&investors&with&the&majority&of&equity&markets&around&the&globe&in&the&
red&and&fixed&income&markets&not&offering&any&safe&harbor&either.&&Emerging&Markets&were&especially&hit&hard,&losing&12.98%&in&
the&three&months&ending&July&as&measured&by&the&MSCI&EM&Index.&&With&hardly&any&encouraging&news&for&sustained&growth,&
corporate&earnings&past&their&peaks&and&most&current&investments&at&least&close&to&fairly&valued,&investors&are&scrambling&to&
reposition&their&portfolios&to&protect&for&a&potential&prolonged&market&correction.&&After&years&of&above&average&returns,&investors&
slowly&but&surely&prepare&for&a&low&return&environment&in&the&coming&years.&&Of&course,&even&with&lower&expected&returns,&there&
will&be&attractive&investment&opportunities&but&they&will&most&likely&be&harder&to&find&and&be&of&more&opportunistic&nature.&&Major&
challenges&investors&face&today,&include&fairly&or&close&to&fairly&valued&equity&markets&and&rising&interest&rates.&Private&market&
investments&fair&not&much&better&either,&with&private&equity&valuations&and&leverages&close&to&peak&and&too&much&money&chasing&
too&few&deals&at&too&high&entry&valuations.&&A&similar&story&can&be&told&for&private&real&estate&investments&in&certain&locations.&&With&
all&these&headwinds&and&risks,&how&should&a&portfolio&be&repositioned?&&Where&can&attractive&investment&opportunities&be&found?&&
The&next&pages&outline&investment&opportunities&and&thoughts&for&the&current&investing&environment.&&Most&of&the&opportunities&
can&best&be&implemented&at&foundations&or&endowment&funds&with&a&flexible&asset&allocation.&
Global Equity
Equity&exposure,&either&in&the&form&of&public&equity&or&illiquid&
private&equity,&will&remain&the&main&driver&of&portfolio&returns,&
despite& the& above& average& returns& delivered& post& financial&
crisis.&&The&S&P&500&returned&10.1%&annually&over&the&last&85&
years& between& 1929& and& 1914.
1
&& However,& over& the& last& 6&
years,&the&annualized&return&post&financial&crisis&has&been&an&
impressive&15.8%.&&Margin&and&PE&multiple&expansion&as&well&
as&rebounding&revenue&has&driven&the&S&P&500&higher&over&
the&last&few&years.&&At&this&point,&with&a&PE&ratio&of&16.4&as&of&
June&30,&2015&compared&to&15.7&over&the&last&25&years,&the&
S&P& 500& starts& to& look& fairly& valued& at& best.&&
Source:&J.P.&Morgan&Asset&Management,&Guide&to&the&Markets&3Q&2015&
Even&if&corporate&earnings&continue&to&grow&in&line&with&GDP&
forecasts
2
,& dividend& yields& and& market& multiples& remaining&
stable,& investors& will& have& to& get& used& to& a& lower& expected&
return&of&around&8%,&close&to&half&what&the&S&P&500&delivered&
over&the&last&few&years.&&The&big&question&mark&is&corporate&
earnings.& & Margin& expansion& won’t& be& able& drive& corporate&
earnings&like&it&did&in&the&early&years&after&the&financial&crisis&
and& revenue& growth& for& the& S&P& 500& overall,& doesn’t& look&
1
&AJO&Partners,&Monthly&Market&Performance,&July&2015&
2
&IMF&World&Economic&Outlook&Update,&July&9,&2015.&Assumptions:&real&GDP&
growth&2016&3%,&Inflation&3%,&dividend&yield&2%,&PE&ratio&16.4&
promising.&In&Q1&2015,&year9over9year&EPS&growth&for&the&S&P&
500&was&95.6%
3
.&&However,&the&main&detractor&was&the&energy&
sector,&ex&energy,&the&YoY&Q1&EPS&growth&for&the&S&P&500&
was& 8.5%.& & Additional& headwind& came& from& a& continued&
appreciation& of& the& USD.& & The& USD& major& currencies& index&
appreciated&17.8%
3
&for&the&year&ending&June&30,&2015.&&Almost&
half&of&the&total&revenues&of&the&S&P&500&are&from&outside&the&
United&States,&putting&additional&pressure&on&unhedged&USD9
denominated&corporate&earnings.&&Of&course,&some&sectors&of&
the&S&P&500&are&more&attractively&valued&than&others&and&offer&
more&opportunities&to&add&value&for&investment&managers&than&
others.&&
&Source:&J.P.&Morgan&Asset&Management,&Guide&to&the&Markets&3Q&2015&
Given&the&increasing&dispersion&of&component&returns&of&the&
S&P&500,&investment&managers&with&less&restricted&investment&
mandates&can&potentially&add&value&and&deliver&excess&returns&
over&the&benchmark.&&2010&–!2014&was&a&difficult&period&for&
active&managers&as&dispersion&of&returns&remained&low&and&the&
perceived&value&of&skill&decreased.&&Further&driving&the&point&
3
&J.P.&Morgan&Asset&Management,&Guide&to&the&Markets,&3Q2015&

2. Roger&Beutler,&CAIA& rogerbeutler@yahoo.com& 858920594244&
home,&86%&of&large&cap&managers&underperformed&the&S&P&
500&in&2014.
4
&&With&lower&absolute&beta&returns&likely&on&the&
horizon,&investors&ought&to&reconsider&the&portfolio&structure&of&
their& equity& allocations.& & While& cheap& beta& exposure& won’t&
increase&the&relative&risk&in&the&portfolio,&the&risk&of&failing&to&
meet& absolute& expected& returns& and& spending& needs& is&
increasing.&&Adding&investment&managers&with&a&high&active&
share&as&a&satellite&position&to&a&passive&core&allocation,&can&
make&all&the&difference&between&out9&or&underperforming&the&
total& equity& benchmark.& & Equity& markets& in& Europe& paint& a&
slightly&more&positive&picture.&&Returns&YTD&have&been&hurt&by&
the&strength&of&the&USD&as&the&MSCI&Europe&posted&a&return&
of&7.55%&in&USD&terms&and&12.49%
5
&in&local&currencies&as&of&
July&31,&2015,&respectively.&&However,&Europe&has&more&room&
to&grow,&even&though,&the&journey&might&be&bumpy.&&Emerging&
Markets& remain& interesting& in& the& long& run.& & The& recent&
correction&can&be&used&as&a&buying&opportunity,&depending&on&
an& investor’s& risk& budget.& & The& outlook& for& Frontier& Markets&
remains&promising&in&the&long&run,&however,&volatility&remains&
very& high.& & An& exposure& to& NEXT& 11& ex& Iran& could& be&
considered&as&a&long9term&growth&investment.&&Depending&on&
allocation&size&and&availability&of&resources&for&due&diligence,&
allocation& to& Emerging& Markets& and& especially& Frontier&
Markets&are&most&efficiently&and&cost&effectively&made&through&
index&funds&or&ETFs.&&How&much&of&the&global&equity&allocation&
is&allocated&to&the&U.S.&depends&on&a&variety&of&factors.&&The&
capitalization&weighted&benchmark&as&defined&by&the&MSCI&All&
Country&World&Index,&allocates&52%&to&the&United&States&as&of&
June&30,&2015.
3
&&However,&depending&on&the&flexibility&in&an&
investor’s&investment&policy,&a&significant&underweight&of&U.S.&
Equities&should&at&least&be&given&a&thought.&&On&the&other&end&
of&the&spectrum&would&be&a&weight&based&on&gross&domestic&
product,&putting&the&U.S.&allocation&at&26.07%&as&of&July&31,&
2015.
6
&& Whether& a& capitalization& weighted& index& is& the& right&
benchmark&to&begin&with,&is&an&utterly&different&conversation&
4
&SPIVA&U.S.&Scorecard,&S&P&Dow&Jones&Indices,&Year9End&2014&
5
&MSCI.com&
6
&MSCI&ACWI&GDP&Weighted&Index&Fact&Sheet,&7/31/15!
7
&Cambridge&&&Associates,&U.S.&Private&Equity&and&Selected&Benchmark&
Statistics,&March&31,&2015&
altogether.&&The&size&of&the&private&equity&allocation&within&a&
global&equity&allocation,&is&mainly&dependent&on&the&liquidity&
needs&and&accessibility&to&top&funds.&&For&most&portfolios&the&
allocation&will&range&between&10&and&25%&to&have&a&meaningful&
impact&on&portfolio&performance.&&The&Cambridge&Associates&
U.S.&Private&Equity&Index&added&82&bps.&and&412&bps.
7
&over&
the&S&P&500&Index&adjusted&for&cash&flows&for&the&5&years&and&
10& years& ending& March& 31,& 2015,& respectively.& & Short9term&
performance& has& been& less& exciting.& & However,& one& should&
keep&in&mind&that&the&performance&of&the&U.S.&Private&Equity&
Index&does&not&account&for&manager&selection&skills&but&rather&
represents& the& performance& of& the& pool& of& private& equity&
managers.&&Mid9&to&long9term&performance&remains&compelling&
for&U.S.&and&non9U.S.&investments,&for&both&PE&and&especially&
VC.&&The&important&question&however,&is&whether&private&equity&
managers& will& be& able& to& add& value& to& portfolio& companies&
going& forward.& & The& answer& is& maybe.& & Money& for& LBOs&
remains&available&but&entry&valuations,&driven&by&higher&stock&
markets&have&become&high.&&Multiple&expansion&is&less&likely&
at& the& exit& of& the& investment.& & Dry& powder& is& abundant& and&
competes&with&strategic&buyers,&which&have&plenty&of&cash&on&
their&balance&sheets&for&acquisitions.&&While&global&fund&raising&
has& slowed& down,& global& dry& powder& as& of& June& 30,& 2015&
increased& by& over& $200& billion& from& December,& 2014,& now&
standing& at& $1.32& trillion.& & Driven& by& recent
Source:&Preqin,&2Q&2015&Private&Equity&Fund&Raising&
performance,& lack& of& fund& & raising& and& investor& appetite&
between&2000&–!2009,&&U.S.&VC&funds&outpaced&U.S.&buyout&
funds&by&raising&38%&more&capital&in&2Q&2015.
8
&&Sitting&on&the&
sidelines&might&not&be&a&good&option&but&VC&valuations&have&
become&a&concern&to&the&point,&&that&even&fund&managers&are&
8
&Preqin,&2Q&2015&Private&Equity&Fund&Raising&

3. Roger&Beutler,&CAIA& rogerbeutler@yahoo.com& 858920594244&
getting&worried.&"I#think#that#Silicon#Valley#as#a#whole,#or#that#
the#venture7capital#community#or#startup#community,#is#taking#
on# an# excessive# amount# of# risk# right# now—unprecedented#
since#'99"
9
.&Bill&Gurley,&partner&of&Benchmark&Capital,&made&
the& comment& close& to& a& year& ago& and& valuations& certainly&
haven’t&become&more&attractive&since.&&By&no&means&should&
investors&with&the&appropriate&liquidity&and&risk&budget&just&sit&
on&the&sidelines.&&However,&a&focus&on&fund&managers&with&
deep&capabilities&to&improve&operational&efficiency&rather&than&
financial&engineering&could&be&paying&off&significantly&down&the&
road.&&
Global Fixed Income
An& appreciating& U.S.& dollar& made& global& fixed& income&
investments&a&tough&place&to&be&in&the&first&of&half&of&2015.&&In&
many&cases,&the&currency&loss&all&but&whipped&out&the&meager&
local& returns& provided& by& foreign& fixed& income& investments.&&
The&Barclays&Capital&Global&Aggregate&Bond&Index&ex.&U.S.&
lost&4.72%&in&the&first&6&months&of&2015,&while&its&U.S.&peer&lost&
0.1%
3
.&&On&the&upside,&interest&rates&abroad&are&expected&to&
raise& slower& than& in& the& United& States,& providing& a& relative&
cushion&against&further&capital&loss.&&However,&the&big&lever
&Source:&J.P.&Morgan&Asset&Management,&Guide&to&the&Markets&3Q&2015&
remains& the& currency& exposure.& & While& hedging& an&
international&equity&portfolio&is&debatable&due&to&a&company’s&
often& multi9currency& stream& of& revenue,& it’s& worth& consider&
hedging& the& currency& exposure& of& interest& and& principal&
payments& of& fixed& income& investments.& & GMO& recently&
published& a& white& paper& outlining& the& company’s& view& on&
hedging&currency&exposure&for&their&equity&and&fixed&income&
strategies.
10
&&USD&denominated&emerging&markets&sovereign&
debt& along& with& corporate& EMD& were& the& only& highlights& in&
global&fixed&income,&posting&YTD&returns&of&1.67%&and&3.70%,&
respectively.&&Local&EMD&lost&4.88%&during&the&same&period.
3
&&
While&currency&hedging&of&a&fixed&income&allocation&to&reduce&
unwanted& risk& in& the& portfolio& certainly& makes& sense& for&
9
&Wall&Street&Journal,&September&15,&2014&
10
&GMO&White&Paper:&The&Case&for&not&Currency&Hedging…,&Catherine&
LeGraw,&April&2015!
investors,& & the& strengthening& of& the& USD& my& have& run& its&
course&and&a&partial&or&no&hedge&might&be&in&order.&&Despite&
higher& correlations& of& USD& denominated& sovereign& and&
corporate&EMD&to&US&corporate&debt,&the&loss&of&diversification&
is&worth&it,&considering&the&yield&pick9up&and&attractive&spread&
compared&to&U.S.&corporate&bonds.&&In&addition&to&EMD,&Global&
High&Yield&and&Bank&Loans&continue&to&be&attractive&additions&
to&an&investor’s&portfolio&with&raising&rates&on&the&the&horizon.&&
U.S.& HY& spreads& remain& below& the& long9term& average& with&
default&rates&still&below&2%,&about&half&of&the&average&default&
rate&at&3.9%
3
&&Regulatory&changes&post&financial&crisis&opened&
the&door&for&more&private&credit&strategies&as&banks&pulled&back&
from& extending& credit.& & Mostly& between& distressed& and& high&
yield&in&the&risk&spectrum,&the&focus&of&private&credit&strategies&
is& often& on& pricing& inefficiencies& in& primary& and& secondary&
markets&of&performing&debt.&&With&an&expected&return&in&the&
low&to&mid&teens,&including&a&coupon&rate&often&5%
3
&higher&than&
high& yields,& private& credit& strategies& can& be& attractive& in& the&
current& low& yield& environment& for& an& investor& not& needing&
liquidity.&&
Real Assets
U.S.&Real&Estate&investments&performed&well&in&the&last&five&
years&ending&June&30,&2015,&returning&14.41%&net&per&annum&
as&measured&by&the&NFI9OCDE&Index
11
.&&Strong&performance,&
however,&has&attracted&more&capital&and&driven&prices&up&to&
the&point&where&investors&are&starting&to&get&concerned.&&Core&
assets,&especially&for&trophy&properties,&are&in&many&cases&no&
longer&attractively&priced.&&Generally,&return&expectations&are&
going& to& remain& strong& globally& for& core& investments,& with&
returns&in&the&798%
12
&range&for&the&next&2&years.&&Value9add&
investment&remain&attractive,&however,&keeping&delivery&to&the&
market&in&mind,&the&focus&should&be&on&shorter&term&execution&
given&the&current&stage&of&the&the&real&estate&investment&cycle.&&
Opportunistic&investments,&including&greenfield&developments,&
are&worth&considering&for&an&investor&with&a&long9term&view.&&
11
!NCREIF,&NFI9OE&Snapshot&Report&12/31/14!
12
&Invesco,&The&Global&Outlook&for&Real&Estate&1H&2015&

4. Roger&Beutler,&CAIA& rogerbeutler@yahoo.com& 858920594244&
Distressed& opportunities& in& Southern& Europe& remain&
selectively& attractive,& especially& with& potential& future& rent&
growth&in&the&near9term&future.&&With&the&recent&correction&in&
commodities,& adding& an& allocation& to& commodities& is& worth&
thinking& about& even& if& it’s& not& part& of& the& strategic& asset&
allocation.&&A&long9term&play&on&the&continued&global&recovery&
are&global&maritime&investments.&&Global&shipping&has&shown&
signs& of& recovery& and& could& offer& competitive& risk9adjusted&
returns&for&an&investor.&&
Conclusion
While& investors& will& generally& have& to& get& used& to& lower&
expected&returns,&skillful&investors&will&still&be&able&to&add&value&
to& investment& portfolios& through& manager& selection,& tactical&
asset& allocation& and& investing& opportunistically& by& taking&
advantage&of&market&dislocations.&&Please&do&not&hesitate&to&
contact&me&if&you&have&any&questions&or&if&you&would&like&to&
exchange&investment&ideas.
!
&
Roger&Beutler,&CAIA&worked&in&banking&and&finance&since&starting&his&career&in&the&early&90s&in&Switzerland.&&He&was&a&Director&
of&Investments&for&a&$2&billion&foundation,&where&he&was&responsible&for&the&foundation’s&private&market&investments&comprising&
of&over&$500M&in&private&equity&and&real&estate&commitments.&&Prior,&Beutler&led&the&sub9adviser&selection&for&a&family&of&mutual&
funds&and&held&positions&in&the&investment&consulting&industry.&&Beutler&graduated&from&the&University&of&Applied&Science&in&Berne,&
Switzerland,&majoring&in&Banking&and&Finance.&
This&article&is&for&informational&purposes&only&and&does&not&constitute&an&offering&of&investment&services.&&This&article&in&no&way&
constitutes&the&provision&of&investment&advice.&&Information&in&the&article&is&not&an&offer&to&buy&or&sell,&or&a&solicitation&of&any&offer(s)&
to&buy&or&sell&the&securities&mentioned&herein.&&For&further&information,&please&contact&me&at&858920594244.&