With 77 firms heard from, we’re now reporting $1.7 Trillion in full-discretion assets under management by outsourced chief investment officer firms.

That’s a year-over-year jump of $364 billion – or a little over twenty one percent – since September, 2016!

See last year’s report, here: https://www.charlesskorina.com/?p=3916

The number of reported RFPs is also rising as institutions seek better returns and broader investment options.  OCIO providers, in turn, are beefing up their resources to meet the needs of current and prospective clients.

For example: Alan Biller, Hirtle Callaghan, Goldman Sachs, and Cambridge Associates, among others, all continue to add headcount and expand capabilities.

Hirtle Callaghan is hiring senior client-centric investment professionals, Goldman and Cambridge continue to mobilize and deploy their deep internal resources, and Alan Biller continues to build for the future and consolidate their commanding position in the multi-employer pension space.

Where are CIOs to come from?

As a search-committee chairman remarked to me recently, there are very few Joe Montanas to be had among nonprofit CIOs.  The accomplished stars and no-brainer candidates are mostly immovable. 

That’s obviously true among the mega-endowments. Seth Alexander, Andrew Golden, and Scott Malpass are happy where they are.  Recent hires like Narv Narvekar and Britt Harris were well-known to Harvard and UTIMCO, respectively, for years.  And in each case that is probably the only move either would have considered.

But much the same problem exists at smaller funds.  Proven leaders are already well-paid; and/or they’re closer to the end than the beginning of their careers.

Paula Volent, for instance, has done a stellar job at the $1.3 billion AUM Bowdoin College endowment, and is still relatively young.  But her board is – wisely – taking very good care of her.  It’s unlikely that another fund that size could match what’s she’s making.

See: https://bowdoinorient.com/2017/09/15/volents-pay-jumps-930k/

Talent is still available at a reasonable price, lots of it.  But you have to look deeper and harder, and may need to move down to next-generation leaders who don’t have the long track-records that reassure nervous, picky boards.  Next-gen candidates bring less hands-on experience and must survive harder scrutiny.

Big Fortune 500 firms like GE spend years and millions of dollars training their leaders for top jobs.  Nonprofits don’t have the time or budget for that.

New CIOs must show up full-fledged ready to hit the ground running.

OCIO firms can offer the proven performance of those unobtainable super-stars at a reasonable price.  And they can replicate the entire investment office with the process and structure to cope with the complexity of modern portfolios and mounting operational and regulatory burdens.

An OCIO isn’t necessarily the best choice for your institution, but it’s an attractive proposition for many.  That’s why their AUM is still growing at that blistering pace.

Stay tuned for Part 2:

In our next newsletter, we will have more to say about the pros and cons of outsourcing, plus an extended analysis of endowment investment management costs, and conversations with some prominent outsourcing leaders.

For now, let’s just look at how the sector is doing and who’s available to take your call per our latest research.

On to the 2017 edition of Skorina’s Ultimate Outsourcer List!

Scott Wilson steps up 

Washington University lands a prime Chief Investment Officer

Washington University in St. Louis has landed a splendid new chief investment officer for its $8 billion endowment: Scott L. Wilson of Grinnell College.

The hire was announced last week and conducted by WUSL’s interim CIO and search committee chair Eric Upin.

Mr. Upin is a highly qualified CIO in his own right.  He’s a Harvard MBA, former CIO of the Stanford endowment and, more recently, a senior partner and CIO at outsourcer Makena. (Check out Makena’s standing in our updated OCIO list, coming next week!)

Mr. Wilson served for more than seven years at the $1.9 billion (FY 17) Grinnell College endowment in Iowa, including three years as CIO.  He’s a Grinnell grad, and was working toward an MS in financial mathematics from the University of Chicago when he was transferred to Tokyo.

Before joining Grinnell he held a series of hands-on bond- and derivatives-trading jobs, including a long tour in Tokyo working for Bank of America and Barclay’s Capital.  And every summer he likes to get away from it all by retreating to his cabin somewhere up a mountain side in a remote part of Alaska.

He arrives in St. Louis with the global perspective needed at a major endowment in this era.  We know, for instance, that he has been shifting equity money into ex-U.S. markets since 2014, including establishing a foothold in sub-Saharan Africa (through private-equity deals), where many have feared to tread.

Kim Walker departed St. Louis in December after a 10-year tour as founding CIO at the WU Investment Management Company.  She had no announced destination, and hasn’t yet surfaced anywhere else.

For Mr. Wilson, who’s still only 41, this is a big step up.  He’s moving from the 63rd-largest to the 16th-largest endowment per our latest SEER rankings.  And he will undoubtedly see a commensurate jump in pay.

Our SEER numbers show Mr. Wilson with total comp of $562,117 in 2014, the latest period available.  Ms. Walker got $891,871 in the same period (which is a bit on the low side for a Top 20 endowment).  We would expect him to get a package totaling close to $2 million as he comes aboard this Fall.

See SEER pay rankings: https://www.charlesskorina.com/?p=4922

Five-year annualized performance for the two funds has been similar: 5.4 percent at Grinnell and 5.6 percent at WUSL.  But their allocations have been significantly different.

See SEER performance rankings: https://www.charlesskorina.com/?p=4828

Grinnell is heavier in equities than most big endowments, including WUSL.  That equity exposure worked for them in FY2015, when Grinnell returned a big 20.4 percent, ahead of all the Ivys, and tied with University of Minnesota for the best performance among Top 100 endowments.  Mr. Wilson has been lightening that equities bucket over the last two years, shifting more into alternatives, but it still stands at about 40 percent as of FY2016.

Mr. Wilson has also eschewed macro hedge funds at Grinnell, because it creates portfolio construction issues which make it very difficult for the investment office to return its cost of capital.  This may or may not be reflected in the WUSL allocations going forward.

Like most big endowments, both WUSL and Grinnell posted losses in FY2016, but Grinnell has come roaring back in FY 2017 with a return close to 19%, bringing their five-year return to an impressive 10%.  As we see from their target allocation below, Grinnell has been high in equities when it counted and low in real assets when the pickings were slim.

In this issue

• Compensation and the Top 100+ Chief Investment Officers 
• Fiddles and finance: Navigating an inefficient market
• OCIOs and the costs of outsourcing
• 6 charts with pay, performance, OCIOs

Download letter in PDF from www.charlesskorina.com

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Paying the Top Guns of Institutional Investing

Last month in Part One of this report we focused on relative performance.  We ranked 107 CIOs by trailing 5-year returns.

See: https://www.charlesskorina.com/?p=4828

Now, we focus on how much institutions pay these excellent people.

The bare comp numbers lead us to the tricky and perennial question of whether their pay is properly aligned to their performance (or vice-versa), and we offer some analysis and opinion from the point of view of working headhunters.

We also consider the cost of an OCIO firm relative to an in-house CIO-led investment office.

Now, on to the charts!

This letter looks at the most recent five-year performance of over one hundred of the world’s best university endowment chief investment officers.

We rank their returns, review their performance, and reveal their strategies for the decade ahead.

Endowment chief investment officers (and other non-profit CIOs) have an infinite investment horizon, a global playing field, and can invest in anything anywhere – within the broad policy limits set by their institution.  They are the top guns of the institutional investment world.

We recruit these investment heads for endowments, foundations, family offices and institutional investment firms.  And, we (and many others) regard the CIOs at major American universities and foundations as the best of the best.

A CIO candidate may have a sterling character, a stunning intellect, and a winning smile.  Those things do count.  But will he or she make money for our clients?  Recruiting a high-profile investment executive is a complex process, but it starts with objective measurements.

We compile the information presented in this report for internal use to help us as recruiters, and we think it will be useful to boards, trustees, CEOs and all our readers.

Chief investment officers “make things happen.”  Security selection, manager selection, timing, and fees play an important role in investment performance – allocations don’t explain everything!

We also uncover the emergence of a new consensus around a 60/40 – alternatives/public markets – portfolio, even as we report on the embarrassing success of the old 60/40 stocks/bonds

This is our SEER report: Skorina’s Enhanced Endowment Report.  The enhancements are the names and returns of individual CIOs (or OCIOs), data which are not readily available elsewhere.

If you need further information, or help with hiring decisions, please call on us anytime.

Now, on with the show:

Britt Harris and the rise of the Aggies

Thomas “Britt” Harris is a highly-respected investment manager around the world.  But, more importantly, he is a highly-respected investment manager in Texas.  More important, still, he’s an Aggie.  And, now he’s been named CEO and CIO of UTIMCO effective August 1st.

Aggies are graduates of Texas Agricultural and Mechanical University.  They form a proud, but slightly aggrieved subtribe among Texans.  But, at UTIMCO, their stock seems to be soaring.

The nine-member UTIMCO board traditionally includes three appointees of the University of Texas System, but only two from Texas A&M System which has always rankled the folks from College Station.

See: Texas turmoil: UTIMCO reboots, https://www.charlesskorina.com/?p=4520

Last month, UT Chancellor McRaven, who had held an ex officio seat, graciously stepped down so that the Aggies could name another board member.  This month, they named Janet Handley to that seat.  Ms. Handley just retired as chief investment officer at the Texas A&M Foundation.  She’s a very nice lady, and the performance of her fund is chronicled in our upcoming Top 100 CIOs report.  More important, she graduated summa cum laude from Texas A&M in 1975.

Then the UTIMCO board voted to rename their organization, which is now officially the University of Texas/Texas A&M Investment Management Co.  That’s a bit ungainly, so the Aggies conceded that they could still call themselves UTIMCO.  That’s a relief to us, because that other thing won’t fit in our charts.

For the Aggies, having one of their own in the top spot is just icing on the cake.  (They’re also pleased that ex-Governor Rick Perry, still another Aggie, is now U.S. Secretary of Energy.)

Oh, and by the way, the Aggies would want you to know that the Texas TRS retirement system under Mr. Harris has outperformed UTIMCO under ex-CEO/CIO Bruce Zimmerman.

Although Mr. Zimmerman is technically a Texan, he went to Harvard, which should speak for itself.