Know what you own, and know why you own it — Peter Lynch

These are “interesting times” for institutional investors.  Covid and a market crash in 2020, stimulus frenzy and valuation-highs in 2021, war and the end of free money in 2022. Whew.

But despite the volatility, there’s nothing like a decade’s long bull market to fatten school coffers.  Just about every endowment on balance is better off than it was a decade ago, as our ten-year return numbers show.

NACUBO and TIAA will have more to say on the matter in their online session this Thursday February 23rd at 2-3:30 ET as they showcase their annual semi-official endowment league tables.

We recruit chief investment officers and finance professionals for families and institutions, so our 2022 endowment performance tables focus on the individuals who manage the money.

Endowment investment heads 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 don’t mean to slight the thousands of bright, creative, and top-performing investment professionals at foundations, family offices, and Wall Street firms, but it’s difficult to extract meaningful data on compensation or performance from opaque sources.  So, we go with what we can get.

In this report, we feature ten-year  investment returns for one hundred twenty-nine US and six Canadian institutions as of fiscal year-end 2022, the latest available.

We consider a ten-year span to be a rigorous and revealing measure of the strength of an institution’s oversight and long-term investment abilities, but we remind our readers that there’s much more to the story.

First the caveats

Keep in mind that the job of every CIO and investment staffer is to meet the objectives set by their board, not to beat Yale.

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.

We all love the league tables (well, most of us) but board members and administrators set the parameters for investment execution, and they are the ones to judge whether their goals are met.

Next. There is no one reporting standard for endowment performance and no institutional body to enforce a standard even if there was one.

Many schools report their numbers net of all costs including external management fees, internal office costs, and the endowment tax, but not all.  Some report gross returns.  Others subtract external management fees but not office costs or the endowment tax.  Over a ten-year period that makes a difference.

Third, timing of returns.  This is a big problem.  Public market results are computed and consolidated by investment custodians and reported to their clients usually within a month of the fiscal close.

But things get cloudier for illiquid alternative assets with no quoted prices: so-called “level 3” items.  As a result, private market valuations take much longer, three months at least, and there is a fair amount of wiggle room.

Most investment teams will not know their June 30th private investment performance until September 30th or later.  In some cases, much later.  As a result, returns released to the media are estimates at best.

Three prominent CIOs summed up the challenges as we were collecting our data.  One warned . . .

Be very careful with FY2022 numbers Charles.  There is a huge difference between those that reported privates through Q2 and those that lag their private performance numbers.

Like showing a 50% difference between their public equity (down -20%) and private equity (up 30%) for those with lagged reporting.  And, if you are lagging, you are including Q2 21 which was the huge up quarter and not including Q3 22, which was the big down quarter.

Another wrote . . .

Expect the fictitious returns of FY 2021 to be a headwind for all endowments over the next year or two as private valuations start to reflect reality.  The endowments with underdeveloped private portfolios will have their day in the sun.

And finally . . .

I hope you are devoting a lot of commentary to the futility of judging performance over the last few years.  Publics and directional hedge funds have come screaming back (~+8% in January alone), while venture capital is still being marked down.

In fact, we expect venture capital to be a bloodbath.  Start-ups are running out of money right and left – many won’t get funded, and those that do get funded are with terms that are either actual down rounds or often disguised down rounds with “valuation” flat, but terms like liquidation preferences, anti-dilution terms and warrant kickers transferring value from existing investors to new investors.

Caveat subscriptor!

Let’s talk about the ladies

We have eight female CIOs in the top twenty-six all putting up great numbers.  But among the roughly two-hundred colleges and universities over $500 million AUM with CIOs, only about twenty percent are women, the same ratio as we highlighted in our 2019 report on women chief investment officers.

That’s puzzling because if we drop down one management level the male/female ratio approaches 50/50.

When we profile female CIOs (Kim Lew, Amy Falls, Paula Volent and Jane Dietze) and ask how they first became interested in investment finance, it’s almost always because early on they had a role model.

Someone in the family or a family friend, someone they met in high school or college who worked in finance took the time to explain what they did and why they liked the job.

More mentors, greater mobility.

There are plenty of talented women waiting for a CIO opportunity and our research shows they perform among the best.  So go ahead, reach out, we’ll all be better for it.

African American CIOs. Anyone?

We count only four African American CIOs at US endowments.  Brooke Jones at Bryn Mawr College, Frank Bello at Howard, Kim Lew at Columbia, and Charmel Maynard at the University of Miami.  That’s it folks.

Of the seven hundred or so chief investment officers we track at endowments, foundations, hospitals, public pensions, associations, and charities, we can find only fifteen African American CIOs, a minuscule two percent.  There’s more work to be done.

How we display our data

We have grouped our endowment performance data into four sections:

• 101 US endowments over one $1bn
• 21 US endowments, $500mm to $1bn
• 7 US endowments with non-June 30 FYs
• 6 largest Canadian endowments

We also highlight the endowments managed by OCIO firms (Outsourced Chief Investment Officer).

Updates and edits

Try as we might, there are bound to be errors.  Please let us know.  We will make the changes and send out an updated list in a few weeks.

To all those who helped us, we greatly appreciate it.  Thank you.

— Charles Skorina

 

(Endowment investment performance 2022 PDF)