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

————————————————–

Endowments

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.

————————————————–

Foundations

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

————————————————–

Corporate Pensions

Dekia M. Scott, CIO, Southern Company

Bryan Lewis, CIO, US Steel

————————————————–

Public Pensions

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 31^st 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.)

(download Company Directory as PDF)

Pioneers take the arrows, settlers take the land – Anonymous

Our latest Outsourced Chief Investment Officer report features a list of 107 OCIO firms, each with updated contact information and AUM numbers.  It’s the most comprehensive and accurate available.

For the nine months ending December 31st, 2021, the managers on our list added $472 billion (a 14.4% gain) in AUM, totaling a record $3.74 trillion dollars in discretionary outsourced assets.

But after years of steady growth, it’s apparent there’s a shakeout underway.

As we noted in our February 2021 OCIO update, discretionary asset managers without products to sell are notoriously hard to scale.  Brilliant, original strategies lose their potency when they are widely copycatted. Or, a strategy works in one season, in one kind of market, but not in another.

That’s why so many OCIOs and RIAs now have private equity partners or reside within much larger financial or consulting organizations.

As Jon Hirtle, executive chairman of OCIO provider Hirtle Callaghan, remarked to Alicia McElhaney in a recent Institutional Investor article, “In business school, they teach you there’s a group of pioneers. If it works, there’s a flurry of copycat activity. And then there’s a shakeout and a consolidation.”

From our vantagepoint, it looks like the industry is entering the consolidation phase.

Wealth management M&A activity reached an all-time high in 2021, with an announced 307 transactions according to Echelon Partners’ 2021 RIA M&A Deal Report.

Over the last sixteen months, CapTrust acquired Ellwood Associates, iM Global Partners bought Litman Gregory, New Providence joined The Colony Group, Focus Financial bought CornerStone, and US Bank swallowed PFM – five firms on our last OCIO list.

And from what we hear there is plenty of dry powder and amenable prospects waiting in the wings.

Barron’s reported last November that “KKR is taking a stake in Beacon Pointe Advisors, the largest female-led RIA, in a deal that values the acquisitive firm at over $1 billion.”  This after KKR invested in and then exited from Focus Financial, another RIA and OCIO aggregator.

Given this merger merry-go-round, we took our cue from Institutional Investor and spoke with Mr. Hirtle, “a pioneer in the outsourced chief investment officer business,” as Ms. McElhaney put it.

What did he think about the buy-out mania? Is the independent OCIO model still viable? And if so, how does one keep the “barbarians” at bay?

We include our conversation with Mr. Hirtle below.

What about the elephant?

Our data suggests that demand for outsourced investment services will continue to grow at a healthy rate, but that new entrants face formidable odds.

Why?  Because there’s an elephant in the room.  Concentration.  A handful of managers control the bulk of the money.  

Just eight providers – Aon, Blackrock, Goldman Sachs, Mercer, Russell, SEI, State Street, and Willis Towers Watson – manage well over half the OCIO assets, $2.073 trillion of the $3.74 trillion AUM.

That’s fifty-five percent of the outsourced pie.  And they kept a tight hold on their market share in our latest reporting period, securing forty-five percent or $211 billion of the $472 billion gain.

Big Eight ranked by AUM

Honey, We’re Rich!

Say what, dear reader?  You have just been blessed with a humongous liquidity event?

After decades of work and a bit of luck you “suddenly” have millions, perhaps even tens or hundreds of millions of dollars in investible wealth after selling your business or going public.

You are now officially rich, and it feels great.

But wait.  What’s that?  Obscure family members you never knew existed are beseeching you for “loans”; allegedly good causes from Missoula to Mozambique are demanding donations; sketchy financial “advisors” are bombing your email and phones with “once-in-a-lifetime opportunities.”

First Things First

We’ve recruited family office investment heads and advised on selecting wealth-management firms.  But it works both ways.  We listen very carefully to our clients and learn a lot from them.

Here is some advice from clients who have been through it.

1. The very first thing. Hire a tough, experienced lawyer who is used to dealing with wealth managers, brokers, and solicitors.  (Not just the firm who helped you with routine legal chores on the way up.)  It will be money well spent and you won’t regret it.  You will need a real pro to run interference for you against the sharks.
2. The very next thing. Hire a reliable and reputable accountant who understands the complexities of wealth-management.  You will need financial controls and a voice of caution.  Dollars can slip away fast without an experienced check on your newly-rich exuberance.
3. Take your time. No sudden moves.  Think about how to organize your affairs, your objectives, impact on family-members and upcoming generations.
4. Establish a realistic spending rate. And stick to it.  One rashly-purchased yacht, jet, or hobby-ranch can punch a surprisingly big hole in your seemingly-unsinkable new fortune.

Fortune and Fate

Why build a family investment office? Because, as one chief investment officer at a large family office told me recently, “bad stuff happens.”

He mentioned that when the head of the family and business founder was thinking about hiring internal investment talent, the founder asked other family leaders he knew why they had hired a CIO.

They all said that having investment expertise inhouse and a portion of the assets in a diversified portfolio separate from the main business helped them when the unexpected struck.

In the last twenty-five years we’ve weathered a slew of financial storms including the 1997 Asian financial crisis, the 1998 Russian collapse, the 2000 Dot-com bubble, the Twin Tower attacks, and the 2007–2008 and February 2020 crashes. Remember those? And for the last two years Covid. And now there’s the appalling Russian assault on Ukraine.

And yet, in every crisis there’s opportunity. In 2020, according to the Credit Suisse 2021 Global Wealth Report, total wealth in North America rose by US 12.4 trillion. And probably more in 2021.

Looking at the ultra-high-net-worth segment, Boston Consulting Group counts 20,600 UHNW individuals in the US with personal wealth over $100 million, totaling about $5.8 trillion in investable assets.

Meanwhile, depending on the source, the number of US family investment offices grew from 3,000 to well over 5,000 during the last decade.

Personally, we have received more family office chief investment officer inquiries in the last two years than we’ve had in the ten prior.

Why?

Occasionally we publish commentary from other sources. This short piece from PitchBook on venture capital’s skyrocketing valuations is a timely follow up to our last note on investment returns 2021.

As Mary Cahill, former Emory University CIO, commented in a recent Fundfire post, “Gains on paper are not the same as money in the bank.”

Speaking of investment returns, the last two years under Covid have been strange days indeed. Half the population can’t make rent, while the other half – anyone with assets – runs the table.

One year ago, in FY2020, university endowment returns averaged 1.8 percent. This year our back-of-the-envelope calculations suggest an average in the low thirties.

It’s anybody’s guess what next year will bring, but we’ll leave you dear readers with these words of investment wisdom from a master of the craft.

“Go for a business that any idiot can run – because sooner or later any idiot probably is going to be running it.”

― Peter Lynch

Best wishes for the Holidays and a great 2022.

— Charles Skorina

VC-backed IPOs are booming, yet public performance this year is lagging

PitchBook, December 4, 2021

Has 2021’s ramp-up in IPO activity been a rush to the exits prior to a change in the market cycle?

Is it just the new normal?

Time will tell, but one thing is certain: US VC-backed IPOs have broken all kinds of records this year, unlocking more than $500 billion of liquid value.

The median company valuation at IPO is nearly 60% greater than its last private valuation. However, our VC IPO index has shown relative underperformance against the S&P 500 since the beginning of 2021.

(hit link for chart)

Long-term performance still shows above-market returns, but inflationary pressure and the increased expectations of interest rate hikes in the coming year have introduced more volatility in the market for these freshly public companies.

These swings have been especially potent in the software space, which represents nearly 50% of the total weight of the IPO index, as the lofty valuation multiples placed on those companies have received a reality check in the face of rising discount rates.

While the majority of the underperformance came earlier in the year, it remains top of mind given the signs of increased market uncertainty—which have been amplified by fresh pandemic-related concerns.

This represents a significant threat to the sustainability of the IPO volumes we’ve seen over the last couple of years, as negative price performance or just general uncertainty will discourage IPO plans for certain startups, especially if they have access to other financing and liquidity options.

We will maintain vigilant coverage of this space as we expect IPOs and their performance to be a leading indicator on the health of the VC industry, as public markets have facilitated the majority of exit value over the last two years.

For more data and analysis, click to download our free Index of Venture-Backed IPOs.

Feel free to reach out with any feedback or questions, or if you would like to discuss the research.

Best,

Cameron Stanfill, CFA, Lead Analyst, Venture Capital

(news@pitchbook.com)

PitchBook research (part of Morningstar) reports on private equity and venture capital.  We always enjoy the read.

————————————————–

CHARLES SKORINA & COMPANY

Our services: recruit CEOs & CIOs, advise on performance and pay, M&A consulting

Our clients: board members, family offices, and institutional asset managers

skorina@charlesskorina.com

www.charlesskorina.com

(520) 529-5677

THE SKORINA LETTER Sign-up

News, Interviews, Research for Institutional and Family Office Investors

Prior

JPMorganChase – Institutional credit, lending, risk management

Ernst & Young – Financial systems consulting

US Army – Russian Linguist, Japan

University of Chicago, MBA, Finance

Michigan State University and

Middlebury Institute of International Studies at Monterey

Culver Academies