Archive for the ‘Newsletter’ Category

Where do chief investment officers come from?

03 / 21 / 2018
by Charles Skorina | Comments are closed

Where do chief investment officers come from?

Every year there are about 50 to 100 US nonprofit (tax-exempt) and family office CIO searches and that number will climb as more ultra-high-net-worth families (over $100 million AUM) form offices, create foundations, and hire professional investment talent.

PwC forecasts a near doubling in global AUM over nine years, from $84.9 trillion in 2016 to $145.4 trillion in 2025, and predicts the US share of this global wealth pie to swell from $46.9 trillion to approximately $71.2 trillion over the same period.

But where will families and institutions find these investment heads?  Asset owners want to know where to find good candidates, portfolio managers want to know what their chances are of landing a CIO job, and marketers for external money managers want to know whom to call.

Some families and institutions will select the OCIO option (outsourced chief investment officer) and place their assets with an outside firm, but most will choose internal management. 

As search consultants, we recruit and fill positions within three broad categories: nonprofit institutions, family offices, and the for-profit investment world of Wall Street investment banks, insurance companies, mutual fund managers, RIAs, hedge funds, and consulting firms.

All public pension systems, most endowments, and many foundations, health systems, associations, charities and corporate pension plans publish their fund returns and we use that information to rank and identify the top performing funds, chief investment officers, and senior asset managers.  Find the best performing funds and you are likely to find the best talent.

Most nonprofit funds over $1bn and about one third between $500 million and $1bn have CIOs.  In 2011, we counted about 1,300 CIOs and heads of investments at tax exempt institutions.

Today we track about 1,100 chief investment officers and another 800 up-and-comers in the nonprofit sector as the increase in endowments, foundations, and other nonprofits with a billion or more in AUM has been offset by a drop in the number of corporate DB plans.

Family offices: the best CIOs you’ve never heard of



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Women in finance: Rukaiyah Adams

12 / 20 / 2017
by Charles Skorina | Comments are closed

Rukaiyah Adams, chief investment officer at Portland’s Meyer Memorial Trust - doing good and investing well

The $90 billion dollar Oregon Pension ranks among the top fifteen in the US, but how many in the industry know the current board chair, Ms. Rukaiyah Adams?

Ms. Adams was born in Berkeley, CA, grew up in diverse, northeast Portland, and returned to her home city after a stellar legal and investment career in California and New York.

She splits her professional duties between the $750 million AUM Meyer Memorial Trust, where she is chief investment officer and the $90 billion Orego​n Investm​​ent Council, where she is board chairperson.

Present day Portland is a little easier to reach than it was when President Thomas Jefferson sent Captain Lewis, Second Lieutenant Clark, and the ‘Corps of Discovery” west to explore the vast uncharted American territories.

Still, Portland is not Wall Street and, at the west end of the Oregon Trail, just far enough off the beaten track to feel a bit isolated. 

Yet, the state is home to the Oregon Investment Council, one of the nation’s largest pension funds, several well-run university endowments, three first-rate investment consulting firms, and the Meyer Memorial Trust, established with a bequest from Mr. Fred G. Meyer, a twentieth century supermarket magnate.

When Mr. Meyer died in 1978 at the age of 92, he left two million shares of stock to the newly formed foundation.  And thanks to a buy-out deal in the early days of private equity, the value of the trust’s holdings soared.  KKR and the Oregon Investment Council, in one of their first joint buyout forays, purchased the Fred Meyer Co. in 1981, which did wonders for the stock.

Ms. Rukaiyah Adams joined the foundation as investment head about four years ago, after managing a $7bn fixed income and derivatives fund for The Standard, a Portland-based financial services company.

We caught up with Ms. Adams earlier this year and wondered what the investment view looked like from her outpost on the Pacific rim.

Ironically, with only a handful of African-American chief investment officers in the entire US, the progressive northwest has two, Ms. Adams, a Portland native, and Joseph Boateng, from Ghana originally, and the long-serving investment head of Casey Family Programs in Seattle, the largest non-government provider of foster care in the country. 

We wanted to know what drew her to the asset management industry, her views on investing, and what advice she might have to offer to encourage more women and minorities to get into the business.



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University endowments in the crosshairs

12 / 12 / 2017
by Charles Skorina | Comments are closed

The U.S. has the greatest university system in the world.  But it’s expensive.  And congress is about to make matters worse by taxing the endowment earnings of “large” private college and university endowments.

The latest congressional proposal aims to slap a 1.4 percent excise tax on the net investment income of any private university with an endowment of more than $250,000 per full-time student, about 70 universities.

Unfortunately, universities can ill-afford any additional hits to the bottom line.  A recent report by The College Board, found that a "moderate" college budget for an in-state public college for the 2016–2017 academic year averaged $24,610 and a moderate budget at a private college averaged $49,320.”

Private universities in particular lean heavily on their endowments for tuition assistance and operational support.  Melissa Korn noted in the Wall Street Journal earlier this year, that “schools with endowments over $1 billion funded just over one-third of institutional grant aid from their endowments, while those with endowments of less than $25 million used that pool to cover 5.8% of aid”.

Endowment pools are like savings accounts and endowment earnings the interest.  The more we draw from savings to spend today, the less money we earn to spend tomorrow.

Two years ago, I defended Yale’s endowment, arguing that its capital “is a perpetual source of support for present and future generations of students and faculty and, it takes a long time to accumulate.”

“Cambridge, the wealthiest university in Europe, took 800 years to amass an endowment of $8.1 billion.  Harvard's $36.4 billion took 377 years to accrue.  Upstart Stanford University grew its endowment to $21.4 billion in "just" 130 years.  And that "hoarded" wealth drove performance; American universities dominate the rankings of global higher education.”

Unfathomably, the latest congressional proposal to tax the earnings of “large” private school endowments turns that reality on its head.  The legislative war cry now seems to be “grab what you can today and let future generations fend for themselves”.

There are four sources of income for American universities and colleges and all four are under pressure.  State and federal support has been dropping for years.  Endowment investment returns appear likely to decrease.  Tuition costs have reached unsustainable levels.  And donor gifts have flatlined.

And that may not be the worst of it.  Clayton M. Christensen, the Kim B. Clark Professor of Business Administration at Harvard Business School (ironically, it’s an endowed chair!), sees half of America’s 4000 colleges and universities going bankrupt in the next decade or two, as online education “disrupts” the business models of traditional institutions and runs them out of business.

Our system of higher education – including the great private universities – has been a key asset in our national preeminence.  Financing that system is a growing challenge, but taxing endowment earnings or forcing unwise spending mandates on a handful of successful institutions will only aggravate the situation.

I closed my Yale piece by saying:

Endowments help channel private wealth to public purposes.  They are an American success story, and one reason Americans have never had to rely solely on the whims of a benevolent state, as in Europe.  I hope Congress doesn’t spoil the ending.



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Endowment costs: The secret history

10 / 18 / 2017
by Charles Skorina | Comments are closed

Endowment costs: The secret history

In early 2016 certain Congressional committees sent letters to 65 major private universities asking for information about their endowments.  They supposedly had an urgent need for this data and gave the schools just 30 days to respond.

It was worded as a polite request, but it came from people who could, for instance, compel the endowments to adopt a strict spending rate (like private foundations) instead of the more flexible regime they currently enjoy as "charities."  Needless to say, the schools all coughed up the information forthwith.

Apparently, this data-dump just went into filing cabinets, and neither the schools nor Congress have been eager to share those reports with the general public.  Nevertheless, we scrounged up copies of 15 of the responding letters from various sources.  The other 50 schools have kept theirs out of sight.

We were especially curious to see what the schools had to say about endowment management costs, which has always been a cloudy issue for us.

Commonfund agrees.  In a 2015 study they opined that:

...unlike other factors that affect investment returns, such as asset allocation and the many types of operational and investment risk, costs are almost certainly the least well understood.

See: Commonfund Institute: Understanding the cost of Investment Management (October 2005).

As we said in our OCIO report, the perceived cost of managing the endowment is a major factor in the decision to outsource, or not to.

It's not the only factor, but a big one.  But how can a board make that decision if they don't know whether they're spending more or less than their peers?  And, whether outsourcing will actually save them any money?

Investment returns can be benchmarked to the second decimal place, but the costs of managing those investments are harder to come by.

NACUBO and Commonfund include questions about those costs in their annual NCSE survey, and report broad averages.  But there is almost no data on specific schools.  We also have suspected that the reported NCSE average costs are on the low side, but had no hard evidence one way or the other.

Recent 990 filings also require a dollar amount for "investment management fees," but we haven't had much confidence in that number.

So, we've attempted to do our own analysis of the cost data reported by those 15 schools.  It has some limitations, but we seem to be the only ones to have ransacked these letters.

The Nine "normal" endowments

Nine of the endowments offered plausible numbers (expressed as annual dollar amounts and/or percentages of AUM) for both their investment-office costs and fees paid to external money-managers for the three fiscal years 2013-2015.

Here's what we extracted from their responses.



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OCIO assets up over 21% in Skorina’s latest OCIO list!

09 / 20 / 2017
by Charles Skorina | Comments are closed

With 77 firms heard from, we’re now reporting $1.7 Trillion in full-discretion assets under management by outsourced chief investment officer firms.

That’s a year-over-year jump of $364 billion – or a little over twenty one percent – since September, 2016!

See last year’s report, here: http://www.charlesskorina.com/?p=3916

The number of reported RFPs is also rising as institutions seek better returns and broader investment options.  OCIO providers, in turn, are beefing up their resources to meet the needs of current and prospective clients.

For example: Alan Biller, Hirtle Callaghan, Goldman Sachs, and Cambridge Associates, among others, all continue to add headcount and expand capabilities.

Hirtle Callaghan is hiring senior client-centric investment professionals, Goldman and Cambridge continue to mobilize and deploy their deep internal resources, and Alan Biller continues to build for the future and consolidate their commanding position in the multi-employer pension space.

Where are CIOs to come from?

As a search-committee chairman remarked to me recently, there are very few Joe Montanas to be had among nonprofit CIOs.  The accomplished stars and no-brainer candidates are mostly immovable. 

That’s obviously true among the mega-endowments. Seth Alexander, Andrew Golden, and Scott Malpass are happy where they are.  Recent hires like Narv Narvekar and Britt Harris were well-known to Harvard and UTIMCO, respectively, for years.  And in each case that is probably the only move either would have considered.

But much the same problem exists at smaller funds.  Proven leaders are already well-paid; and/or they’re closer to the end than the beginning of their careers.

Paula Volent, for instance, has done a stellar job at the $1.3 billion AUM Bowdoin College endowment, and is still relatively young.  But her board is – wisely – taking very good care of her.  It’s unlikely that another fund that size could match what’s she’s making.

See: https://bowdoinorient.com/2017/09/15/volents-pay-jumps-930k/

Talent is still available at a reasonable price, lots of it.  But you have to look deeper and harder, and may need to move down to next-generation leaders who don’t have the long track-records that reassure nervous, picky boards.  Next-gen candidates bring less hands-on experience and must survive harder scrutiny.

Big Fortune 500 firms like GE spend years and millions of dollars training their leaders for top jobs.  Nonprofits don’t have the time or budget for that.

New CIOs must show up full-fledged ready to hit the ground running.

OCIO firms can offer the proven performance of those unobtainable super-stars at a reasonable price.  And they can replicate the entire investment office with the process and structure to cope with the complexity of modern portfolios and mounting operational and regulatory burdens.

An OCIO isn’t necessarily the best choice for your institution, but it’s an attractive proposition for many.  That’s why their AUM is still growing at that blistering pace.

Stay tuned for Part 2:

In our next newsletter, we will have more to say about the pros and cons of outsourcing, plus an extended analysis of endowment investment management costs, and conversations with some prominent outsourcing leaders.

For now, let’s just look at how the sector is doing and who’s available to take your call per our latest research.

On to the 2017 edition of Skorina’s Ultimate Outsourcer List!



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