In this issue 5 reasons for Harvard’s lost decade Ultra-high-net-worth: managing money the German way CalPERS versus their peers: maybe next year Women in Finance: Rukaiyah Adams, CIO Meyer Memorial Trust, a Portland native gives back Download letter in PDF from https://www.charlesskorina.com/ ————————————————– 5 reasons why Harvard’s endowment stumbled (and 3 reasons why things are looking up) The Harvard endowment has been in the news lately, wrestling with spin-outs, write-offs, and “right-sizing”.  As keen observers of investment talent and performance, we have a few thoughts of our own on the reasons for their challenges.  Here are our top five. 1. Failure to communicate.  In prior years, the Harvard Management Company (HMC) and the University seldom spoke to each other. 2. Bad luck.  Jane Mendillo, the former HMC president, joined on July 1, 2008.  Six months later, the abyss. 3. Bad investments.  Mr. Narvekar, the current HMC president, inherited heaps of garbage. According to the WSJ, he is still shoveling. 4. Chronic indecision.  HMC swept dirt under the rug for a decade.  Stephen Blyth’s departure forced a reckoning. 5. Size really matters.  It’s one thing to lead a staff of ten, quite another to herd three hundred.  Before Mr. Narvekar, the saddle didn’t fit. 3 reasons why the future looks brighter 1. HMC board 2.0.  The current board is realistic, experienced, and committed. They are all on the same page now. 2. Paul J. Finnegan. Smart, unflappable, and decisive. Harvard University got serious appointing Mr. Finnegan as HMC board chair.  3. N.P. “Narv” Narvekar. A savvy investment profession with no illusions about the challenge. The HMC board got serious when they hired Mr. Narvekar. ————————————————– How they manage their money German family office, multi-billion dollar AUM, best-in-class Why is the German economy so strong?  Because Germans believe in work, education, and skill-based training.  It’s in…

Groupthink is a phenomenon that occurs when a group of well-intentioned people makes irrational or non-optimal decisions spurred by the urge to conform or the belief that dissent is impossible. – Psychology Today It’s hard to find an independent thinker among university endowments these days.  Every board member wants to hire a Swensen clone and every CIO wants to partner with Sequoia.  Group-think and safety-in-numbers has become the new endowment-model-norm. David Swensen was one of a kind, a different thinker, a pioneer.  Swensen blazed a trail thirty years ago and his first book was called Pioneering Portfolio Management for good reason.  It was all new stuff.  Forget public markets.  Spend your time on private opportunities with less visibility and more upside. Today that trail he blazed has become a freeway and the endowment model is one very crowded trade. Richard Ennis, co-founder of EnnisKnupp (AON), points out that in 1994 large endowments with AUM over one billion dollars held on average less than twenty managers in their portfolio. Twenty-five years later the average was well over one hundred, with some holding close to three-hundred funds (asset managers, commingled funds, and partnership interests, NACUBO Study 2019). The strategy du jour on campus is mostly about appeasing the VC and PE gods, doubling down with existing managers and anteing up to the spin-offs.  No one wants to be excluded from a new manager or the next flagship fund. Proliferation drives up costs of course.  With management fees of two percent of AUM plus a twenty percent carry, plus broken-deal fees and every conceivable expense charged back to the fund, the load can run six to ten percent. As an aside, we hear that Swensen was cutting back on managers and growing more conservative in his final years.  We’ll see what course Matthew…

Our November letter looks at one of the country’s biggest and most effective operating foundations – the $2.5 billion AUM Casey Family Programs (CFP) in Seattle – and Joseph Boateng, the man who manages the money. An “operating” foundation uses most of its resources to run its own, internally-managed charitable programs. Among the 86,000 foundations in the U.S. totaling $715 billion in assets, almost all are grant-makers. Only 5 percent run their own charities as CFP does. This has implications, as we shall see, for their investment program. In 1907, 19-year-old Jim Casey and his 18-year-old pal Claude Ryan between them had one bicycle and $100 borrowed from a friend. They set up the American Messenger Company, operating out of a hotel basement in Seattle. The automobile was still a novelty and aviation barely existed. His brother George and a few friends worked as messengers. The tiny bike-messenger company grew into mighty UPS, with an enterprise value of over $100 billion and which now moves its packages on its own aerial fleet (UPS Airlines), flying hundreds of giant jet freighters all over the globe. Not to mention 96,000 trucks, vans, tractors and even motorcycles. Alas, no bikes.   When Mr. Casey died in 1983 he’d turned his borrowed $100 into a personal fortune of $100 million. Most of that went into the CFP operating foundation and the related grant maker Annie E. Casey Foundation. The former is still sited in Seattle, while the latter – also focused on child welfare – is in Baltimore. For any of our readers who lives have been touched by foster care, you know Casey.  President and CEO William C. Bell, Ph.D., a former New York City commissioner for Child Services, joined CFP in 2004 and became CEO in 2006. A year later the Casey Board recruited Joseph Boateng to work with Dr. Bell as the foundation’s…

African-American investment professionals in the News. . . better late than never! Last week Columbia University announced that Ms. Kim Y. Lew, chief investment officer and thirteen-year veteran of the Carnegie Corporation, will join Columbia’s $10.9 billion Investment Management Company as CEO on November 2nd. She won’t have far to move. Her new office is located about eight blocks south and three blocks east of her present location in mid-town Manhattan. This hire is a big deal and the search committee — Columbia University’s board of directors, President Lee C. Bollinger, and EVP of finance Anne Sullivan — shattered several glass ceilings when they welcomed Ms. Lew on board. Gender is a formidable barrier for females in finance. On our latest list of the top one hundred endowment chief investment officers pre-Ms. Lew, there are only sixteen women. [This is pre-Kim Lew and Brooke Jones, both moves announced last week.  Ms. Jones was Kim Lew’s investment director and will move to Bryn Mawr College as CIO next month. Dekia Scott, 19 years at Southern Company, was promoted to CIO in June] Fortunately, Columbia’s search committee was more interested in talent and ability than race, gender, or religion when they selected Ms. Lew. [Our full interview with Ms. Lew is just below] We see a lot of boilerplate in the nonprofit world about how “we don’t discriminate.” But, truth be told, if you are a woman, or more pointedly, an African-American woman in asset management, you face gale-force headwinds as you scale the institutional precipice. How bad is it? For over thirty years we have followed the careers of several thousand investment heads at Wall Street investment and money center banks, hedge funds, insurance companies, and nonprofits. Within our global database we have about six-hundred-fifty chief investment officers at endowments, foundations,…

In this issue CA vs NY: Performance and pay at the Mega-pensions Skorina seeks a chief investment officer We talk to Vicki Fuller, CIO of NY’s $200 CRF ————————————————– Vicki Fuller, New York State Common Retirement Fund, and the Quest for the Seven-Percent Solution Vicki Fuller, chief investment officer at the country’s third-biggest public pension — New York State’s Common Retirement Fund – has announced her retirement by the end of this summer of 2018. We just had a chance to chat with her about her life and times.  But first, here are a couple of mini-charts to put everything in perspective. As of September 2017, there were only three U.S. pensions with over $200 billion in assets – two in California, and one in New York.  Here’s how Ms. Fuller’s fund stacks up against the Californians. AUM (9-30-17) and trailing net multi-year returns (6-30-17) CIO Fund  AUM  1yr 3yr 5yr 10yr  Vicki Fuller  Aug 2012 – Jul 2018 NYSCRF $201bn 11.48 6.17 8.35 5.59  Chris Ailman Oct 2000 – Jul 2018 CalSTRS $216bn 13.40 6.30 10.10 5.00 Ted Eliopoulos  Feb 2014 – Jul 2018 CalPERS $337bn 11.20 4.64 8.80 4.40   We included 10-year returns, although only Mr. Ailman was aboard for the whole decade.  Indeed, he’s still motoring along with almost 19 years on the job. Also, Mr. Eliopoulos recently announced that he, too, will depart this summer; so, we’ll soon see CIO turnover at two of the big three. Ms. Fuller can’t claim credit for the entire 10-year number, but it’s interesting to see that New York State does slightly lead the Californians over the longer haul. The other critical stats for pensions are the assumed rate of return and funded status. Assumed rate of return and funded status (6-30-16) CIO Fund Assumed Return Percent Funded Status…