In this letter, we highlight the compensation of one hundred chief investment officers at US university endowments.
Endowment investment chiefs are the ultimate long-term, strategic investors.
They have an infinite investment horizon, a global playing field, and can invest in anything anywhere – within the broad policy limits set by their institution.
Their performance is a bellwether for what’s prudent and possible.
We recruit these executives for a living and avidly follow all institutional investment heads managing assets over $1 billion (and many with less), tracking their performance and pay, and scrutinizing their abilities.
Foundations, family offices, and Wall Street firms also employ top investment professionals, but it’s difficult to extract meaningful data on compensation or performance from opaque sources. So, we go with what we can get.
When it comes to pay, size matters
Nonprofit investors wear many hats but have essentially one metric by which they are judged; long-term performance. However, that does not seem to be the metric for how they are paid.
We ran some correlations using our archival data-sets to see how pay correlates to AUM, tenure, and five-year performance.
As shown below, the correlation coefficient for AUM to comp is 0.69, which is moderately high. But, tenure and performance don’t appear to have much impact on CIO pay.
There are some outliers, like Paula Volent at Bowdoin, a consistent top performer and deservedly well paid, managing an endowment with less than $2bn AUM. But, in most cases, size trumps all other metrics.
Comp-vs- AUM: 0.69
Comp-vs-5yr Rtn: 0.27
In the larger corporate world CEO pay is an object of great interest and controversy for obvious reasons. But the relationship of size to compensation looks just like what we see in our set of endowment CIO data.
Kevin Hallock at Cornell University is one of the go-to experts in this field. He’s chair of their department of Labor Economics and director of their Institute for Compensation Studies. In papers with his students and colleagues he’s studied CEO pay for many years.
He says: It doesn’t matter whether company size is measured as assets, market value, sales revenue or number of employees — bigger firms pay more … way more.”
“We can isolate the impact of all kinds of other characteristics (e.g., industry, return on assets, profitability, research and development expense, etc.) and even use complicated statistical techniques to remove the influence of “unmeasurable” characteristics, and the size-to-pay link remains intact.
The bottom line. Be it Wall Street, Main Street or nonprofit institutions – the bigger the assets, the better your chances at making more money.
It’s that simple.
And now, on with the showRead More »
Dekia M. Scott, newly promoted to CIO at Southern Company
19yrs at Southern Company. MBA Emory, BA Spelman CollegeRead More »