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 4^th-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:

Risky Business: Chief Investment Officers and Public Pension Plans

Happy August!

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”.

http://www.wsj.com/articles/pennsylvania-attorney-general-kathleen-kane-charged-with-obstruction-perjury-1438876492

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.

http://www.dailymail.co.uk/news/article-3190654/From-state-prosecutor-defendant-Pennsylvania-s-attorney-general-arraigned-court-leaking-secret-grand-jury-details-press-make-rivals-look-bad-enlisting-aides-spy-office-employees.html

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.