Chief Investment Officer Pay in 2018

12 / 08 / 2018
by Charles Skorina | Comments are closed

Our projections - Growth slowing to 7 percent for endowment CIOs

Back in October, we reported the latest-available compensation numbers for 74 chief investment officers at the biggest (over-$1 billion AUM) endowments.

We used the most recent filings for our data, but those numbers (for calendar year 2015) were already pretty stale.

As we said then, the hitch is the long time-lag -- more than two years -- before IRS data is publicly available.

Now we're back with our own estimates of what these CIOs are actually making right now, in real time, extrapolating from 2015 to 2018.

We find that typical CIO pay has been growing at a compound rate of more than 7 percent per year

We looked at a large subset of those original 74 CIOs, 32 who had held office for five consecutive years, 2011 to 2015.  It's a big enough and inclusive-enough subset (big and small, public and private, geographically diverse) that we feel comfortable projecting our findings to the whole population of 74 CIOs.

From that time-series we projected out three more years to get point-estimates for 2018.

(To be clear, this is total W2 compensation, including base, bonus and "other" as classified by the IRS.  It omits other benefits which are not taxable to the CIO, but which may be significant.)

The median big-endowment CIO made approximately $609,000 in 2011.  Five years later, in 2015, he or she was making about $1,100,000.  That's a rise of about 80 percent over five years.

Stated as a compound annual growth rate (CAGR), that's 12.6 percent per year.

But that's based on historical data.  We then needed to push our trendlines out from 2015 to 2018, for which we have no data.  So, stand back, some freshman math is required.

 

We found that CIO pay is still growing briskly, but that the growth rate seems to be slowing in recent years.

 

From 2015 to 2018, we estimate that the median CIO in our sample grew his/her pay from $1,100,000 to $1,380,000, for a rise of 26percent over three years.

 

As a CAGR, that's 7.1 percent per year.

 

The chart below shows the pay for the 32 CIOs in our study and projections for the 21 who are still in office this year.



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Compensation and chief investment officers

11 / 04 / 2018
by Charles Skorina | Comments are closed

Who are the best-paid endowment CIOs?

Compensation is a delicate issue; but recruiters need to keep track of it.  And, we see no reason why we shouldn't share some of that bounty with our readers.   (See our complete compensation chart just below.)

Most of it is publicly available, anyway; as long as you're willing to scrounge for it.  Private schools and some publics disclose it in IRS filings.  The hitch is the long time-lag -- more than two years -- before the data is publicly available.  The corresponding data for most public schools is often fresher, but it's scattered among various and often quirky databases in various jurisdictions with various disclosure rules.

It's ironic that data for public colleges has sometimes been the least public.  But that's changed somewhat in recent years as more states adopt sunshine laws for public-employee pay generally.  Or, you can file a FOIA request.  But it's been like pulling teeth in many places.

And, even when public-school CIO comp is published, it can't always be trusted.  Clever college administrators have sometimes found (or constructed) loopholes in those sunshine laws which let them conceal part of the CIO pay-package.

A recent and noisy case in point arose in Michigan.  The official University of Michigan salary-disclosure listing (page 447) for 2017 showed CIO Erik Lundberg's total comp as $720,000.

We've been skeptical of that number for a while, but the U was eventually prodded into disclosing that Mr. Lundberg actually made $2 million in 2017.

Although the gross number had become public, the Detroit Free Press still sued the University to obtain details about how it was calculated.  

The judge sided with the Freep, but the university argued that they had legitimate reasons for keeping them private.

"Despite the court's ruling, we believe disclosure of the ... Incentive Plan will put U-M at a competitive disadvantage," a school spokesman said.  "Because there are very few public universities in our endowment peer group, virtually no comparison [sic] schools will ever have to make their plans public.  These are the employers against which the university competes for talent recruitment and retention."

The fact that a major university would go to some trouble to avoid disclosing that information does speak to the highly competitive market for top CIOs.  If you have a good one (and Mr. Lundberg is very good), there's always anxiety that someone with deeper pockets will whisk him or her away.   And, if you're crafting a competitive offer, it certainly helps to know exactly what you have to beat.

As the Lundberg case confirmed, these pay packages are complex.  In our chart below, we can only offer the bare numbers.



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CA vs NY: Performance and pay at the Mega-pensions

07 / 31 / 2018
by Charles Skorina | Comments are closed


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The Harvard endowment: mark-to-make-believe

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

Before current management terminated the old compensation structure, the huge salary packages at HMC stumped us.  Every time we compiled our CIO compensation studies, we wondered how those paychecks could be so large when performance was so mediocre.

Some fault poor communication, siloed investment teams, and misaligned incentives, but we hear there were other issues – questionable benchmarks and bonuses paid “off-the-mark.”

Here’s how it worked. 

Most of HMC’s assets such as listed equities, fixed income and hedge funds, relied on public market prices.  And the private equity and venture capital portfolios were invested with outside managers who were responsible for valuing the assets.

But the natural resources portfolio was owned directly by HMC and valuations relied on third party appraisers hired by the staff who, in turn, controlled the process.

There were performance benchmarks, of course.  But staff set the benchmarks and beating those benchmarks depended upon valuations and valuations depended on a process controlled by the staff.  In other words, the carry was paid off of unrealized marks on illiquid holdings and superior performance was all but guaranteed.

Even better, there was no easy way to argue against those benchmarks and valuations.  As Matthew Klein wrote in the Financial Times about “private equity’s mark-to-make-believe problem,”

If it’s challenging to figure out what a thing is “worth” when some of the smartest people on the planet, armed with the fastest computers and the biggest datasets, are constantly discussing and betting on its value, it’s downright impossible for investment managers focused on illiquid assets to assess the value of anything they own until they exit their positions by selling to someone else.

Not surprisingly, there was great enthusiasm for these investments within the endowment.

As one source put it to me recently, in Las Vegas, the house wins, but at HMC, the players made the rules.

Fun with FASB

Non-profits must show their investments at “fair value” per FASB 124 on their audited financial statements.  That’s straightforward for publicly-traded securities.  But things get cloudier for illiquid alternative assets with no quoted prices: so-called “level 3” items.  And, it gets cloudiest of all for assets not in the hands of independent third-party managers.

Absent quoted prices the reporting entity must have some reasonable process for establishing those values and for adjusting them up or down from period to period.  If they pass that sniff test, and management has signed off on the process, then the external auditors will probably not second-guess them.

We don’t doubt that HMC had a rational-looking basis for the numbers they printed; but when the process can be influenced by insiders, and those insiders could be said to have a monetary interest in the reported values, there is room for skepticism.  We think the bare fact that there have recently been very significant write-downs under the new management and changes in the way compensation is paid should speak for itself.



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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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