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profile (Everest Capital) and the other having a moderate return/risk profile (Elliott Associates' Westgate); a global macro manager (Tiger Management); and a managed futures fund of funds (Commodities Corp.). As the portfolio gets larger, the college intends to diversify further.

Vassar's rationale for using hedge funds is to both enhance returns and reduce risk. The benchmark is a flat 13 percent. Since inception, July 1, 1992, until the end of the first quarter 2000, the annualized return has been on target at 12.9 percent. "Obviously, we would have liked to have done better, but we did match our benchmark," says Yoder. He is pleased that returns have not been strongly correlated to the U.S. stock market.

Vassar underwent a major change in philosophy at the start of 1996. Rather than just be considered an alternative to equities, hedge funds were now considered a separate asset class. Initially, hedge funds were used as a pure equity alternative to reduce overall portfolio volatility.

Rebalancing Problems.

Tiger Management was Vassar's second manager allocation made in early 1993. Because of strong returns, the college's initial allocation to Tiger of $11 million (3.9 percent of the portfolio) grew to $39 million (7.5 percent of the portfolio) in early 1998. After that time, though, Tiger struggled. In early 2000, the investment committee decided to fire Tiger because of recent poor returns. The firm closed, however, before any action could be taken. Nevertheless, Yoder says that Robertson earned an average annual return of 14 percent per year for the college over that entire seven-year period.

Yoder emphasizes that by not rigorously rebalancing among its hedge fund managers (including Tiger), the endowment hasn't done as well as it should have. "The endowment should have taken money off the table when profits had been made and added to funds' allocations following poor periods," says Yoder. While Yoder often recommended rebalancing, and even succeeded in writing a rebalancing rule into the policy, the investment committee often proved unable to remove money from those managers who had recently done well or add to those whose recent performance was below expectations. "Committees usually require consensus decision making, which by definition cannot be contrarian," observes Yoder. Vassar's committee, which includes both members of the