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Rebutting the Endowment Critics:
The "Hoarding" Hoax and "Excessive" Private-equity Fees
Victor Fleischer, a law professor at the University of San Diego, expressed outrage this summer that Harvard, Yale, and other well-endowed schools have been "hoarding" their tax-exempt endowment cash, mostly, he alleges, at the expense of students.
He and others in his camp argue that Congress should override the judgement of university leaders and compel them to spend at least 8 percent of their endowment funds every year (instead of the current average of about 4.5 percent).
Had congress adopted this plan in 1990, these critics calculate that the Yale endowment would be two fifths the size it is now, $10 billion versus today's $24 billion.
But "sky-high tuition increases" would supposedly stop.
Are we missing something here?
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Robert F. Wallace, the new head of Stanford Management Company, has been aggressively culling his staff since he was appointed in late March.
This has not gone un-noticed by the media, and we can now name more names and connect more dots.
Last year, before Mr. Wallace succeeded John Powers, SMC had about 22 investment staffers (excluding operations, HR, the CFO, etc.).
Four were in the top tier as Managing Directors. Now only one of that original group remains.
Departing MDs were: Craig Blanchard, Saguna Malhotra, Martina Poquet, and Wafa Wei.
(Ms. Poquet was reaching retirement age, so her departure this month may not have anything to do with the CEO shift. Mr. Blanchard left last year, after the announced departure of Mr. Powers, but before the arrival of Mr. Wallace. In January he joined Makena Capital, an asset manager founded by Michael McCaffery, former CEO of the Stanford Management Company. So, these two moves should not be construed as part of the "great purge".)
Last year there were seven staffers with the Director title; now only four remain.
Departing Directors were: Vera Kotlik, Karen Horn Welch, and Joshua Richter.
Last year there were four staffers titled Manager; three remain.
The departing Manager: Ben Chiquoine,
At the junior level there are four Associates/Senior Associates and, as far as we know, all four are still in place.
So, six senior staffers (ignoring Ms. Poquet and Mr. Blanchard) have left since April and we believe they were all pushed out by Mr. Wallace. That's about one third of the pre-Wallace senior staff roster. And, we suspect, one or two more may be contemplating an early departure.
Managing Directors at SMC have a base salary of approximately $400K and a bonus opportunity of another $400K, for a total comp of about $800K. Directors have a base of about $250K and a bonus opportunity of $250K, for a total comp of about $500K.
The departures were partly offset by two new faces Mr. Wallace brought with him.
Greg Milani, who was Mr. Wallace's right-hand man at Alta Advisers in London, was appointed Senior Managing Director, which makes him the highest-ranking staffer.
Mr. Wallace also tapped Jay Kang as a new Managing Director. Mr. Kang is a Yale grad (class of 2002, same year as Mr. Wallace) who worked at the Yale Investment Office under David F. Swensen. More recently Mr. Kang was number-two at the Hilton Foundation in L.A. under CIO Randy Kim (who is another Swensen/YIO alumnus).
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Our Fearless Forecast: Endowment Returns will Disappoint for FY2015
We are here to assuage all anxiety with a fearless forecast, and it's not going to spread much joy across the campi
The typical full-year number for big endowments will probably be just 4 to 6 percent. A few of the high-flyers may do a little better. Some others will be lucky to see 3 percent.
That means most endowments will fall short of their long-term target rate of return, which is a little north of 7 percent nominal.
That's a big drop from last year's average 16.5 percent and even below the recent 10-year average of about 8.2 percent for endowments over $1 billion.
Most schools won't publish an official annual return number for some weeks, but a few major endowments release quarter-by-quarter reports. We can use them to project full-year results and get a feel for what happened in the year just past
We have hard numbers for the first three quarters for four big schools: University of California Regents, University of Washington, University of Florida and Cornell University; all over $1 billion.
With the first three quarters baked in, it was only necessary to project a 4th-quarter value, and we can do that with fair confidence since all the major benchmarks are available for the quarter ending in June.
In the case of University of Florida we don't even need that crutch, since they've already released their full-year results.
Here are the full-year numbers:
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Risky Business: Chief Investment Officers and Public Pension Plans
This is supposed to be the slow season in the media biz as torpid reporters and readers doze through late summer, but a story in the Wall Street Journal last week caught our eye.
The headline read: "Pennsylvania Attorney General Kathleen Kane Charged With Obstruction, Perjury".
The story even got big play in London where the Daily Mail gave it a lot of ink with many pictures of Ms. Kane wearing a smart white-on-white outfit for her day in court.
Just another ho-hum episode of (alleged!) official misbehavior, and far removed from our investment-management beat you say?
Mais, non! Ms. Kane is actually a peripheral figure in a story we've been following for many months which highlights the political pressures on public plans and their professional investment staff.
Our protagonist is Anthony Clark, the recently-retired chief investment officer of the Pennsylvania SERS pension fund, so it lies squarely in our professional cross-hairs.
We write about the careers, compensation, and investment performance of chief investment officers and money managers (at both nonprofit and very-much-for-profit organizations), these being the people we work with in our day job as executive recruiters.
Commentators on U.S. public pension funds often lament that poor governance and political entanglements can hurt their investment performance.
The Tony Clark saga is a case in point. It's also a cautionary tale for investment pros working in or contemplating a move to a public pension.
First, we offer a short (or shortish) version.
For those who want the whole blow-by-blow chronology with links to sources (or who just have time on their hands) there is an addendum further below with our long version.
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