Interview with Russell Read, new CIO at APFC in Juneau

04 / 05 / 2016
by Charles Skorina | Comments are closed

A conversation with Russell Read, new CIO at APFC in Juneau

Russell Read has just been appointed chief investment officer of the $52 billion Alaska Permanent Fund Corporation (APFC), and he's headed for a state in crisis.

The collapse of global oil prices has put a big squeeze on all of the world's oil producers; and in Alaska, where oil funds 90 percent of the state budget, Governor Bill Walker has nothing but bad news for his constituents.  He may even have to reinstate the income tax after 25 years of living on the oil boom.

And he's proposed to cut the cherished annual cash dividend the APFC pays to each resident: from $2,072 last year to just $1,000 in 2016. 

Mr. Read arrives in Juneau on May 1, and he'll have to hit the tundra running.

His appointment is part of a general recent shake-up at APFC.

Angela Rodell was appointed CEO six months ago, succeeding Mike Burns, who retired last summer.  Ms. Rodell is a familiar face in the state capital and at APFC, having served as revenue commissioner under former Governor Sean Parnell and as an ex officio member of the APFC board.

Our friend Tim Walsh will also be a frequent visitor.  He just inked a two-year contract as a part-time advisor to the fund.  Tim is the former CIO of New Jerseys $72 billion pension fund and will add considerable heft to APFC's strategic deliberations.

Last week I congratulated Russell on his appointment and we had a chance to catch up with a wide-ranging conversation about where he's been and what lies ahead.

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You Can’t Clone Yale:

03 / 16 / 2016
by Charles Skorina | Comments are closed

You can't clone Yale:

Can you copy great endowment investment performance?  The Yale endowment, for example?

Reverse-engineering a good performer is probably achievable.  The key attributes can often be identified and, to some extent, duplicated.

But can you replicate great performers?

That's a much taller order.  There's always something slightly mysterious about greatness.

We were reminded of that fact when we looked at a recent white paper by Drew Knowles.  He's the founder and chief investment officer of Berkeley Square Capital Management, an investment advisor in Denver.

"Invest Like an Endowment" is available here:

Mr. Knowles assembled data from NACUBO-Commonfund (NCSE) surveys and analyzed recent historical relationships between asset allocation, endowment size, and performance.  He did a good job and it's worth reading.

As an investment advisor to (not necessarily wealthy) individuals he would like to demonstrate how they can use ETFs to replicate the investment performance of major endowments.  He's particularly interested in showing the usefulness of so-called "liquid alternatives," in which his firm seems to specialize.

He argues that this really can be done, at least to the extent of reproducing the average performance of big (over $1 billion AUM) endowments.

It would be even better if an amateur could match the performance of the very best endowments, such as Yale.  Unfortunately, his model says they can't quite.  But he argues that his Yale Clone should still be an attractive portfolio for the average investor, and makes a good case for it.

Mr. Knowles suggests that an individual investor, by using certain low-fee index-tracking ETFs and rebalancing every year per the latest NCSE data, can do (very nearly) as well as the average big endowment with its professional investment staff and well-compensated external asset managers.  He only actually demonstrates this for 2003-2015, since not all his preferred tracking ETFs existed in earlier periods; but so far, so good. 

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The Worlds Best Institutional Investors? It’s Not That Simple

02 / 08 / 2016
by Charles Skorina | Comments are closed

The Worlds Best Institutional Investors? It's Not That Simple

There is no place like New York for exceptional investment professionals.

Yet with all this talent in NYC (and the US) the challenge of building superior investment teams that can endure and outperform over a decade or more is daunting and seldom achieved.

Consistent, multi-decade superiority isn't impossible, but it's exceedingly rare.  Many redoubtable firms have just vanished.

There are a very few, semi-mythical beasts like David F. Swensen and Warren Buffett, of course.

Swensen built a process for identifying superior outside managers, cementing relationships, and staying with them as long as they are judged to have the edge.  He was also an innovator with first-mover advantage in many respects which can't be replicated.

One of my professors at The University of Chicago once remarked that some money managers seem to have the touch.  And we can theorize, not always correctly, about how they do it.  But most of them have a run bracketed by a certain period or a set of conditions, and then they are gone.

Why is this?

Paul Wachter, the outgoing investment chair of the University of California Regents, was recently asked by Leanna Orr, in an interview for CIO Magazine, about the criteria used by the UC regents during their search in 2014 for a chief investment officer. 

Mr. Wachter listed three principal qualities the UC board looked for in a candidate.

Number one: Organizational skills.  Someone with serious organizational skills, who could work effectively with a big institution like the UC system.

Number two: Personality.  Someone with the personality to work constructively with all of those different constituents, from the board and president to student groups

Number three: Investment skill

But he added a caveat to number three.

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Michigan State University has hired their first chief investment officer

12 / 21 / 2015
by Charles Skorina | Comments are closed

Michigan State University has hired their first chief investment officer

Michigan State is on a roll.

In college football they're rated number three in the country and still in contention for the national championship.  And, they're undefeated and rated number one in early-season basketball.

Not bad; but we've got even bigger news.

My friend Philip Zecher has just been appointed MSU's first-ever chief investment officer, reporting directly to Dr. Lou Anna K. Simon, MSU's president. The trustees announced the appointment on Friday and Phil called me up to give me the official word.

Phil is a low-profile guy with an impressive background, but he's now moving up into a more prominent position: running $2.3 billion of the school's $2.7 billion endowment. ($400 million resides in the MSU Foundation and will continue to be run by that board.)

So, this letter may help to introduce him to the foundation and endowment community and to the asset managers who will be doing business with him.

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Asset Managers: Compensation and Performance

11 / 25 / 2015
by Charles Skorina | Comments are closed
Asset Managers: Compensation and Performance (Part I)
As recruiters we work both sides of the investment-management street: serving not-for-profits like foundations and endowments, and also fee-based (and mostly for-profit) money managers.
Those fee-based managers, especially the big ones, are newsworthy because they invest a lot of money for a lot of customers, including non-profits investors.
They're closely watched by business reporters and financial analysts, who are always hunting for breaking news that might move the markets.
We have a different focus: we are more interested in the market for executive talent than in the markets for investable assets and we've been looking at the money-managers from that angle for quite a while.  Ultimately, we want to understand how the performance of their CEOs and senior managers is judged, how they are compensated, and why they are hired and fired.
We begin with a list of 36 publicly-traded, fee-based U.S. asset managers.  Most money managers are private and keep their compensation data away from prying eyes like ours.  Which means that our list includes a substantial sample of all publically listed asset management firms in the US, the only public and comprehensive source for the data we need.
However, we think the $16.5 trillion managed by our 36 SLAM firms is a useful proxy for judging executive performance.
From a headhunter's point of view our 36-company SLAM list is intimate enough so we will be able to examine in detail (and almost real-time) the performance of individual CEOs as they try to turn AUM into revenues and earnings for their stockholders.
It's also the starting point for an analysis of their asset flows, revenues, earnings, and management performance which we'll roll out in subsequent letters.

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