All I ask is the chance to prove that money can’t make me happy.
— Spike Milligan
Something caught our eye last week as we leafed through a recent Harvard Business School case study, “Modern Endowment Management: Paula Volent and the Bowdoin Endowment.”
The investment team has kept almost no cash or fixed income on hand for over fourteen years. Three-quarters of the portfolio runs on private equity and hedge fund moxie, the rest in stocks.
That’s not how most ultra-high-net-worth (UHNW) family offices do it. In our experience, these offices hold substantial amounts of cash and bonds, adding stocks and real estate for the long haul. Why such a divergence?
According to the HBS study, Bowdoin’s allocation to bonds and cash shrank from 18 percent in year 2000 to essentially zero by 2008 and apparently there hasn’t been a dime added to liquidity since.
Granted, it certainly hasn’t hurt Bowdoin’s performance. Ms. Volent and her team led our ten-year performance rankings in our last endowment report.
Furthermore, the school has sizable reserves. We looked up the College’s financial statements, which listed cash and equivalents of about $80 million against operating expenses of $176 million as of June 30, 2020. So the bursar made sure there was cash in the kitty. And, for the Ivys and elites, Bowdoin included, there are hefty credit lines and wealthy donors to lean on in a pinch.
Bowdoin is not alone, of course. Many large university chief investment officers have managed their endowments for years with a cash-is-trash attitude.
And, as most CIOs have learned the hard way, it’s a brave investment manager indeed who breaks from the herd.
Marks to make-believe
As we wrote last December, endowment returns for 2021 approached the realm of fantasy. Institutional investors delivered once-in-a-lifetime performance, from about 25 percent at the most tentative public pensions to 65 percent at Washington University, St Louis.
Bowdoin, for example, posted an astonishing 57.4 percent return.
We opted not to do our usual performance study last year because we felt the private market marks were too far off the mean – and reality – to fairly assess skill. Given this year’s collapsing valuations, we think we made the right call.
However impressive those investment returns eventually turn out to be once marks convert to hard cash, we can’t help but recall what my first-year finance professor (Robert S. Hamada) at The University of Chicago emphasized in class.
He said that exceptional money managers seem to have the touch. And we can theorize, not always correctly, about how they do it. But most of them have a run bracketed by a certain period or a set of conditions, and then they are gone.
Families think differently
Family offices have been around for centuries and weathered every conceivable storm. They prefer not to fly so close to the sun.
From the major-domos in ancient Rome to Rockefeller and Microsoft heirs, cash has always been king. Liquidity meant power and the means to act in good times and bad.
Maybe it’s also because family founders are usually operators who run businesses and in business, running out of cash is original sin.
The latest UBS Global Family Office Report 2022 breaks out UHNW family asset allocations and their preference for liquidity. The bank polled two-hundred-twenty-one single family offices with total wealth of almost half a trillion dollars and average assets under management of over two billion dollars.
UBS found that large family offices hold substantial cash and fixed income, about a quarter of their wealth all told. Families seldom bet the house.
There have been a few spectacular exceptions of course, Bill Hwang’s Archegos Capital Management for one; the Hunt brothers Herbert and Nelson’s run on the world’s silver supply for another. What were they thinking?
Fortunately the youngest of the three Hunt brothers, Lamar, kept his head and his money and, among other honors, became a Culver Academies Athletic Hall of Fame Inductee in 2006. Funny thing about high school, I couldn’t wait to graduate and yet, most of my closest friends come from our Culver days.
But I digress.Read More »
In the first place, God made idiots. That was for practice. Then he made school boards.
— Mark Twain
We added HighGround Advisors, Pivotal Advisors, Principal Global Advisors, and Harpswell Capital Advisors to our OCIO Spring 2022 Directory. Outsourced AUM now totals $3.74 trillion, a new record. You will find our full report here and updated directory below.
Principal Global Advisors, a subsidiary of the Principal Financial Group, acquired the OCIO assets of Wells Fargo and some of the staff. AUM totals $29.7bn under full discretion.
HighGround Advisors, founded in 1930 to manage the Baptist Congregation pension and endowment assets, now serves over four-hundred nonprofit organizations with total AUM of $2.5bn and $1.5bn under full discretion.
Harpswell Capital Advisors founded by Jack Moore, manages $455 million in discretionary assets.
Pivotal Advisors and Ms. Tiffany McGhee, African-American founder and CIO, currently manage about $400 million with full discretion.
This now means we have two African-American owned OCIO firms in our directory of one-hundred-five outsourcing managers.
Disciplina, founded by Matthew Wright, president and CIO (former Vanderbilt CIO) is our second African-American owned OCIO firm.
That works out to less than two percent, consistent with the handful of African-American stalwarts we found in our reference database of nonprofit chief investment officers and highlighted two years ago.
AFRICAN-AMERICAN CIOs at US NONPROFITS
Kim Y. Lew, CEO, Columbia University IMC
Brooke Jones, CIO, Bryn Mawr College
Charmel Maynard, CIO & Treasurer, University of Miami
Frank Bello, CIO Howard University
Robert “Danny” Flanigan Jr. (1949-2021) CIO & Treasurer, Spelman College.
Joseph Boateng, CIO, Casey Family Programs
Rukaiyah Adams, CIO, Meyer Memorial Trust (depart 8/31/22)
Nickol Hackett, CIO, Joyce Foundation
Bola Olusanya, CIO, The Nature Conservancy
Dekia M. Scott, CIO, Southern Company
Bryan Lewis, CIO, US Steel
Mansco Perry III, ExecDir/CIO, Minnesota SBI (retire 10-31-22)
Angela Miller-May, CIO, Illinois Municipal Retirement Fund
Cheryl Alston, CIO, Employees Retirement Fund City of Dallas
Alex Done, CIO, Bureau of AM, NYC retirement system, (left 12-31-21)
Edward “Ted” Wright, CIO, Connecticut Retirement Plans & Trust Funds (CRPTF)
Source: Charles Skorina & Company
Since our report, minority progress has stalled.
Danny Flanigan joined Spelman College in Atlanta in 1970 and became CIO in 2019. He passed away on March 17, 2021.
Alex Done, CIO at the Bureau of Asset Management New York City retirement system, left BAM officially on December 31st, 2021.
Mansco Perry III, executive director and CIO at the Minnesota State Board of Investments retires on October 31th this year. All the best Mansco, we’ll miss you.
And Ms. Rukaiyah Adams the long-serving CIO at the Meyer Memorial Trust in Portland, Oregon departs on August 31st 2022.
(If there are any African-American CIO additions since this last review, please let us know who you are so we can update our next report.)Read More »