How a mild sex scandal illuminated a common tension in foundation
investing—and why overcoming this tension (and home-field biases in
all portfolios) is essential. Editor-in-Chief Kip McDanielreports.
It started with a free lunch (and airfare, and other unspecified expenses), many actually,
that hid an allegedly clandestine relationship between a reigning A-List technology
CEO and a former Hollywood D-Lister. It ends with further proof of the only free lunch
Diversification has long been understood as the most basic way to protect a pool of
capital from excessively violent swings in value—thus, the hours and days that pension,
endowment, and sovereign wealth CEOs and CIOs spend designing an asset allocation
mix that their boards, mindful of this primary principle, will approve. Yet, one sector of the
asset-owning silo—specifically, foundations—has often found this principle in tension
with the founder’s wishes. The recent travails of the Hewlett-Packard Company and the
foundations established by its founders illustrate both this tension and the benefits of
overcoming it—not only for this unique group, but also for asset owners of all stripes.
Art by Brian Stauffer / brianstauffer.com
13 | ai-CIO.com | October 2010