Our Fearless Forecast: Endowment Returns will Disappoint for FY2015

We are here to  assuage all anxiety with a fearless forecast, and it’s not going to spread much joy across the campi 

The typical full-year number for big endowments will probably be just 4 to 6 percent.  A few of the high-flyers may do a little better.  Some others will be lucky to see 3 percent.

That means most endowments will fall short of their long-term target rate of return, which is a little north of 7 percent nominal.

That’s a big drop from last year’s average 16.5 percent and even below the recent 10-year average of about 8.2 percent for endowments over $1 billion.

Most schools won’t publish an official annual return number for some weeks, but a few major endowments release quarter-by-quarter reports.  We can use them to project full-year results and get a feel for what happened in the year just past 

We have hard numbers for the first three quarters for four big schools: University of California Regents, University of Washington, University of Florida and Cornell University; all over $1 billion. 

With the first three quarters baked in, it was only necessary to project a 4^th-quarter value, and we can do that with fair confidence since all the major benchmarks are available for the quarter ending in June.

In the case of University of Florida we don’t even need that crutch, since they’ve already released their full-year results.

Here are the full-year numbers:

Risky Business: Chief Investment Officers and Public Pension Plans

Happy August!

This is supposed to be the slow season in the media biz as torpid reporters and readers doze through late summer, but a story in the Wall Street Journal last week caught our eye.

The headline read: “Pennsylvania Attorney General Kathleen Kane Charged With Obstruction, Perjury”.

http://www.wsj.com/articles/pennsylvania-attorney-general-kathleen-kane-charged-with-obstruction-perjury-1438876492

The story even got big play in London where the Daily Mail gave it a lot of ink with many pictures of Ms. Kane wearing a smart white-on-white outfit for her day in court.

http://www.dailymail.co.uk/news/article-3190654/From-state-prosecutor-defendant-Pennsylvania-s-attorney-general-arraigned-court-leaking-secret-grand-jury-details-press-make-rivals-look-bad-enlisting-aides-spy-office-employees.html

Just another ho-hum episode of (alleged!) official misbehavior, and far removed from our investment-management beat you say?

Mais, non!  Ms. Kane is actually a peripheral figure in a story we’ve been following for many months which highlights the political pressures on public plans and their professional investment staff.

Our protagonist is Anthony Clark, the recently-retired chief investment officer of the Pennsylvania SERS pension fund, so it lies squarely in our professional cross-hairs.

We write about the careers, compensation, and investment performance of chief investment officers and money managers (at both nonprofit and very-much-for-profit organizations), these being the people we work with in our day job as executive recruiters. 

Commentators on U.S. public pension funds often lament that poor governance and political entanglements can hurt their investment performance.

The Tony Clark saga is a case in point.  It’s also a cautionary tale for investment pros working in or contemplating a move to a public pension.

First, we offer a short (or shortish) version.

For those who want the whole blow-by-blow chronology with links to sources (or who just have time on their hands) there is an addendum further below with our long version.

A New Crew for NYU:

New York University opened its doors in 1831 and it’s now the biggest private college in the country by enrollment.

But their $3.4 billion endowment is relatively small for a large private US university (it’s only the 28th-largest) and its performance hasn’t been very impressive. 

We’ve paid much more attention to their uptown rival, Columbia University, whose $9.2 billion endowment is bigger, higher-performing, and officially Ivy League.  We ranked Columbia and Yale tied for number one by 10-year performance in our annual review of Ivy and Alt-Ivy endowments.  See: https://www.charlesskorina.com/ivy-endowments-performance-pay-2014/

It’s nothing personal.  Greenwich Village is one of our favorite places; and any school that could give the world both Woody Allen and Alan Greenspan must be taken seriously.

Now there’s been a changing of the guard at NYU and we think some attention should be paid.

Michael Steinhardt, who had led the school’s investment committee since 1996, resigned last June.  Tina Surh, chief investment officer since 2010, announced her own resignation six months later.  NYU’s president, John Sexton, who’s had a long but stormy run, is stepping down in January.  And, long-time board chairman Martin Lipton, sometimes described as the school’s real power-broker, will be succeeded in October by insurance executive William R. Berkley.

Wall Street Pay and CEO Performance May 2015

As executive recruiters we have an unquenchable curiosity about the pay of senior executives in the investment-management world.

Unfortunately, many of the biggest for-profit money managers aren’t about to divulge those numbers.  We’d love to know what William McNabb makes as CEO of Vanguard, or James Simon’s comp at Renaissance Technologies.  But they, and many others, are not listed on the stock exchanges and therefore can keep that information confidential.

Still, many other important asset managers are public companies, and the number is growing as major private-equity players and other managers seek access to the stock markets.

We’ve listed 2014 pay for 50 CEOs who run some of the biggest publicly-traded money-management firms.

Most are “pure” asset managers, but we also include some big banks and insurance companies which have major AM platforms among all their other lines of business.  We limited our list to firms which have been publicly traded for at least five years, for reasons which will become apparent.

Then we try to measure how their pay is justified by the returns they generated for their stockholders.  Actually, this was Congress’s idea, but we’re going to play along and see if it makes sense.

Public Endowments: Performance and Pay

The Best, the Rest, and Erik Lundberg – U Michigan, our pick for Public Endowment CIO of the Decade. 

This month we are pleased to bring you our annual survey of endowment performance at the Public Ivys, including many of America’s biggest, most prestigious, and best-endowed public universities.

We think the performance of these endowments ought to be of interest not only to the endowment and foundation community, but to the investment world at large.  They include some extremely talented people getting results which rival investment organizations anywhere. 

And, they are important clients for many for-profit money managers all over the world.  Since most of them are located far from Wall Street and the Northeast media corridor they tend to be overlooked, and we’re glad to shine a little light on them.