Charles Skorina & Company
● RETAINED EXECUTIVE SEARCH ●
Our clients: visionary families, transformative nonprofits, Wall Street trailblazers
Our vision: build investment preeminence, create opportunity, enrich lives
Our work: provide talent, access, relationships, and insights
LATEST NEWSLETTER
Activity is the enemy of investment returns —Warren Buffett
Endowment board members tell us their schools must earn at least eight percent on average to support operations and administration, student aid, and capital conservation. Unfortunately, that’s a tough nut to crack based on recent performance.
Only forty-two of the one-hundred-nineteen funds over one billion AUM in our latest FY2024 endowment performance report achieved eight percent or more over the most recent ten-year period. Roughly one third. The average return for the entire group was seven-point-seven percent.
Even worse, just one of twenty-two endowments between five hundred million and one billion in our report beat the eight percent hurdle. Sadly, those are usually the ones that most need the income.
NACUBO-Commonfund will publish their annual report in a few weeks and we will see how their endowment universe performed. But for FY 2023 NACUBO reported an average return of seven-point-seven percent net of fees for all participating schools. Not much has changed.
The NACUBO chart below shows the volatility of 10-yr returns year by year from 2002.
Here’s the problem: over the last three decades most large endowments have tried to mimic the “Yale model.” But there was only one David Swensen, and he was an outlier, a different thinker, a trailblazer and his first book was called Pioneering Portfolio Management for good reason. It was all new stuff. Forget public markets. Spend your time uncovering private opportunities with less visibility and more upside. And get in early.
The School of Swensen produced many top-flight acolytes, but the master is gone and the world has changed. Today that trail he cut through the wilderness has become a freeway and the endowment model is a very crowded trade. Let’s let Mr. Swensen explain the conundrum.
I figured out when I revised Pioneering Portfolio Management that the most important distinction isn’t between the institutional investor and the individual. It’s between those that are set up to make high-quality active management decisions and those that aren’t.
The investment management world is a strange place in that the right solution is not in the middle. The right solution is at one extreme or the other. One end of the spectrum is being intensively active. The other is being completely passive.
If you end up in the middle, which is where almost everybody is, you pay way too much in fees and end up getting subpar returns . . . The passive group is not nearly as big as it should be. Almost everybody should be there.
First level thinking
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SKORINA IN THE NEWS
9-2-21 Forbes: Insiders say Yale missed an opportunity to add diversity to its iconic $31bn endowment.
9-1-21 Institutional Investor: How to Reach the Allocator C-Suite.
5-7-21 BloombergNews: Yale Names Alex Banker Interim Endowment Chief, Plans Search
5-6-21 The New York Times: David Swensen, Who Revolutionized Endowment Investing, Dies at 67
5-6-21 Forbes: Yale Endowment Chief David Swensen Leaves Legacy of Top College Investment Leaders
CHARLES A. SKORINA & COMPANY works with leaders of Endowments, Foundations, and Institutional Asset Managers to recruit Board Members, Executives Officers, Chief Investment Officers and Fund Managers.
Mr. Skorina also publishes THE SKORINA LETTER, a widely-read professional publication providing news, research and analysis on institutional asset managers and tax-exempt funds.
Our Practice:
• We recruit Board Members and Executive Officers, Chief Investment Officers and Senior Asset Managers.
• Our research and analytics are backed by over thirty years of hands-on recruiting experience and an unrivaled personal network.
• We collect performance, compensation, and background data on most senior institutional investment professionals in the U.S. and the funds they manage. We analyze that data to construct profiles of those managers and their funds, identify best-in-class people, and map their career trajectories.
• We share our research and insights in a widely-read professional newsletter – THE SKORINA LETTER – and website – www.charlesskorina.com.
• The New York Times, Wall Street Journal, Bloomberg, Thompson Reuters, Financial Times (Fundfire), Institutional Investor, Pensions & Investments, Private Equity International, and the institutional investment community use our research and analysis. Skorina has been interviewed on chief investment officer compensation issues on Bloomberg TV.
• Our work is regularly re-printed in Allaboutalpha.com and other industry magazines, blogs, and third- party web postings.
• We focus specifically and effectively on the world we know: Board members and Executive Officers, Chief Investment Officers, and Senior Asset Managers at institutional investment firms and funds – including sovereign wealth funds, endowments, foundations, pension funds, banks, investment banks, outsourced chief investment officer firms (OCIO), and sell-side money managers.
Prior to founding CASCo, Mr. Skorina worked for JP MorganChase in New York City and Chicago and for Ernst & Young in Washington, D.C.
Mr. Skorina graduated from Culver Academies, attended Michigan State University and The Middlebury Institute of International Studies at Monterey where he graduated with a BA, and earned a MBA in Finance from the University of Chicago. He served in the US Army as a Russian Linguist stationed in Japan.
Charles A. Skorina & Co. is based in Tucson, Arizona.
Endowment Performance 2024: How Sweet It Is
Being too far ahead of your time is indistinguishable from being wrong — Howard Marks
Our latest fiscal year-end 2024 endowment performance report features ten-year and one-year returns, and AUM for one-hundred-forty-four US and eight Canadian institutions, the latest available.
In our line of work, acquiring talent and capabilities for institutional and family office clients, we like hard data on the individuals who drive the investment decisions. Returns may be historical, but they are useful clues to an investor’s – and board’s – views, process, and discipline.
We consider a ten-year span to be a rigorous and revealing measure of the strength of an institution’s long-term investment abilities, but we remind our readers that there’s much more to the story.
Board members and administrators set the parameters for investment execution, and they are the ones to judge whether their goals are met. Every school has its own endowment payout rate and tolerance for risk and that’s what CIOs aim for. Some schools rely heavily on income, others place more weight on growing the principal.
A tale of two markets
For those institutions holding substantial U.S. public equity stakes life is sweet. As Chris Markoch at MarketBeat writes, the S&P was up twenty-three percent in 2024, “driven by earnings growth and sector leaders in AI, biopharma, and blue-chip companies.”
Sometimes it’s best to run with the herd, to paraphrase our Mr. Marks. But for endowments with heavy exposure to alts, particularly private equity, there were challenges.
PE has performed well for forty years. But there are periods when the economy tanks, deals stagnate, and returns to investors slow to a trickle.
Here’s Peter Lynch’s droll take on fickle Mr. Market, and a few partisan comments on PE from Alisa Amarosa Wood and Chris Harrington, partners at KKR, and Ludovic Phalippou, professor of Financial Economics at Saïd Business School, University of Oxford.
Opposing pundits aside, we take comfort in the chart below, a cheerful visual we ran in September’s newsletter from MFS investment Management depicting the S&P’s bumps and grinds.
S&P 500 Index cumulative returns for 1-, 5-, and 10-year periods following end of bear market
Tenure and Turnover
What a difference a decade makes. Only about a third of the CIOs in our FY2024 endowment investment report logged ten years or more tenure, and those are mostly the ones on top.
Mr. Philip Zecher, CIO at Michigan State University, and our featured guest below, will soon pass the ten year mark and the endowment’s splendid performance reflects his time and attention.
Chief investment officers new to the position, Ms. Geeta Kapadia at Fordham for example, barely have time to roll up their sleeves and grab a pitchfork. It takes five years at least to clear, plough, and seed an endowment, and five more to fully bear fruit.
College endowments consist of thousands of gifts with strings and legally binding contracts attached. To repeat a well-worn trope, it takes years to fully implement a multi-asset, multi-generational investment strategy and altering course mid-stream – a new investment chair, a change in CIOs, court battles – can sap performance for a decade.
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Phil Zecher, chief investment officer
Michigan State University
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