If I disagree with something, I either bet against it, or I keep silent – Amarillo Slim

It’s been a festive fifty years for the alternative investment industry, with private equity the belle of the ball. And as Chuck Prince, former CEO of Citigroup once remarked, “as long as the music is playing, you’ve got to get up and dance.” But no matter how compelling the party, there are usually a few contrarians lingering in the wings.

Ken Frier, CEO of OCIO firm Atlas Capital Advisors, wrote recently that “The signs are clear, the non-profit model, where the energy goes toward selection of alternative investment managers, is bearing less fruit.

That’s the case even for the Yale endowment – their performance beat a simple 90/10 stock/bond index portfolio by 6.2% in 1994 – 2004, by 3.6% in 2004 – 2014 and just 1.2% in 2014 – 2024. And that 1.2% in the past decade is overstated since Yale cannot sell their private holdings at the reported value.”

Maybe so, but with private equity forecast to double from $5.8tn in 2023 to $12.0tn in 2029 and the “barbarians” storming the retail 401(k) ramparts, one can’t help but wonder what the smart money is up to. As Ben Carlson, A wealth of common Sense, quipped, “being a contrarian is easier in hindsight.”

Most big dollar state pensions still follow the herd. CalPERS recently announced they’re going large on private assets with a target 40% allocation, about $225 billion of the $563 billion dollar fund.

As for CalPERS peers, Stephen L. Nesbitt, CEO & CIO of institutional consultant Cliffwater reported last year that allocations to alternatives reached 40% of state pension assets in 2022, with PE at 14.85% as of 6-30-23.

State Pension Allocations

June 30, 2018 to June 30, 2023

(link to chart)

Non-profit Investment staffs try their best, but most go to the same conferences, use the same consultants, follow the same trends, and invest with the same managers as their peers. Career risk is too great to “think different” when politicians and media trolls lie in wait for any and every mistake.

Pinching pennies

Despite the grumbling, fees still don’t seem to matter much to the institutional crowd. Richard Ennis, former co-founder of consulting firm EnnisKnupp (now AON), thinks the herd pays too much for too little.

“Alts bring extraordinary costs but ordinary returns – namely, those of the underlying equity and fixed income assets.” Ennis finds big endowments in his study – estimated to hold 65% of assets in alternative investments – fare worse than pensions, which have a 35% exposure.

When compared with a market index that he designed with a specific stock-bond mix to mimic funds’ risk profile, endowments have trailed by 2.4 percentage points annually in the 16 years through June 2024. Over the same period, pensions undershot their benchmark by 1 percentage point a year.”

Callan recently published their 2025 Cost of Doing Business Study – “a comprehensive look at the investment management fees paid by institutional investors.” Here are a few highlights from the press release:

“Total investment management fees averaged 40 basis points (bps) across all asset pools. But this headline figure masked significant variation across investor types:

• Nonprofits continued to pay the most, averaging 57 bps, driven by larger allocations to alternatives.
• Public funds averaged 43 bps, but the largest plans resembled nonprofits in both structure and fees.
• Corporate funds averaged 30 bps, driven by growing use of liability-driven investing (LDI).
• Insurance pools, with their conservative asset allocations, were the lowest at 20 bps.”

To be fair

When the winds of change blow, some people build walls and others build windmills ― Chinese proverb

There’s a lot of money to manage in this world, about $471 trillion US dollars according to the latest UBS Global Wealth Report 2025, and well over a third – $175 trillion – sits right here in our own back yard.

Last year Henley Global’s World’s Wealthiest Cities Report 2024 broke down US wealth distribution by individuals and location:

(chart)

All this wealth should be good news for investment outsourcers as nonprofits and the nouveau wealthy look to offload their investment headaches.  But deep-pocket competition and advances in knowledge-based technologies are changing the game.  It’s no time for complacency.

Bots and bolts

Not long after we published our latest OCIO directory, I got a call from the president of a large west coast foundation, unhappy with their OCIO provider’s performance and especially unhappy with the service.

The president explained that they might have stomached the last few years of mediocre returns if communication were timely and forthright, but apparently service was half-hearted and the board had had enough.  They are reviewing alternatives.

In the good old days – before TikTok and cat videos – sales, service, and steady returns were the nuts-and-bolts of money management.  When Hirtle Callaghan, Commonfund, McMorgan & Company, and Strategic Investment Group hung their shingles the outsourced chief investment officer concept was fresh and intriguing. Still a tough sell, but the field was wide open.

Twenty years ago, when the Princeton Theological Seminary asked me for OCIO referrals I sent the school eight names.  Today there are one hundred-eleven firms on our list, and chatbots, robo-advisors, Zoom, and cloud-based access are essential parts of the full-service landscape.

Baby boomers and Gen-Xers still crowd the boardrooms and family seats and most still prefer the human touch, but how and with whom will the next-gens invest?

Digital natives, those born in the internet age – Millennials (1980–1995), Gen Z (1995–2010), and Gen Alpha (2010 – present) – grew up with tech.  As long as their assets are globally accessible, secure, and returns pay the bills they don’t seem to care much about human contact.

So, will AI replace human empathy and intuition as Mr. Zuckerberg envisions?  Will “Her” soon be our most trusted companion?  If so, who or what will manage our money?

Digital shadows

“Most wealth managers say they want more clients.  But too often, they wait for them to show up” notes the Boston Consulting Group.  But, says BCG, there are powerful tools on the horizon to support business development.

GenAI-powered prospecting engines using external data can identify and profile business owners, expats, and high-income professionals and track digital indicators that suggest investable wealth, such as business sale filings, job changes, bursts of luxury travel reviews, and niche signals like luxury car forums.

“The engine doesn’t just find names, it prioritizes them.  An internal scoring system ranks each lead by value and likelihood to convert.  High potential prospects can be routed directly to the most suitable advisors, complete with customized outreach packs.  Every interaction – open rates, meeting conversions, follow-ups – is tracked and fed back into the model, so it gets smarter over time.”

Noah Smith, in his piece “The dawn of the posthuman age” writes:

“When I was a child, sometimes I felt bored; now I never do.  Sometimes I felt lonely; now, if I ever do, it’s not for lack of company.  Social media has wiped away those experiences, by putting me in constant contact with the whole vast sea of humanity.  I can watch people on YouTube or TikTok, talk to my friends in chat groups or video calls, and argue with strangers on X and Substack.  I am constantly swimming in a sea of digitized human presences.  We all are.”

Final thoughts

I never wanted this for you. We just ran out of time, Vito Corleone ― The Godfather

Our spring 2025 Outsourced Chief Investment Officer (OCIO) directory update features one-hundred-eleven service providers with pertinent particulars on each. We include names, numbers, emails, and titles of business executives at each firm ready to take your call.

Our goal is to help families and institutions locate, review, and connect with full-service discretionary outsource investment managers. Our directory makes it easy for prospective clients to reach them. No ads, no paywall, no charge.

Time and Money

Time is a beguiling thing. “The relative progression of existence” posited Einstein. “Mostly a human affair” adds theoretical physicist John Kitching. But for the rest of us, aging is more akin to Hemingway’s famous line, “How did you go bankrupt? Two ways. Gradually, then suddenly.”

Succession, like the passage of time, is something most families and institutions are aware of, but surprisingly few do much about it.

To be fair, sometimes age and events disrupt the best laid plans. A few weeks ago, I met with a notable, highly successful founder and entrepreneur who wished to discuss recruiting a new family office head. Due to this individual’s distinctive longevity, past occupants in the position are no longer with us.

This patriarch is still sharp as a tack and busy juggling ideas and opportunities, but time is short, there’s much to do, and the odds of replacing a time-tested veteran with a like-minded newbie and bringing this fresh hire up to speed in months, not years, are growing longer by the day.

Planning ahead

In the OCIO business it takes years to establish a presence, polish services, and build a solid investment record. Few firms manage the task. Even fewer adapt, revitalize, and deliver across generations.

Recent years have seen a steady stream of outsourcing hopefuls merge with better-resourced patrons as founders age out and cash in. Recent capitulants include Hall Capital, NEPC, Agility, Truvvo, Ellwood Associates, New Providence, CornerStone, PFM, and Permit Capital.

But now and then a firm manages the transition. Hirtle Callaghan, a pioneering OCIO serving philanthropic families and mission-driven nonprofits, opened for business thirty-seven years ago and recently finished fine-tuning their plans for the next fifty years.

Jon Hirtle remains Executive Chairman and works full-time, but the firm has transitioned to a distributed leadership structure with firm-wide support to provide stability and continuity. A three-member management committee now leads the firm, buttressed by ten managing directors and thirty directors.

While controlling interest remains within the Hirtle family – two generations of family members currently in leadership positions – the firm continues to parse out equity and mentor next-gen talent.

There were a few twists and turns along the way, but clients are pleased and the future looks bright.

The sunny side

It turns out, when time flies by, we’re usually having fun. That’s according to a University of Nevada, Las Vegas report.

“We tell time in our own experience by things we do, things that happen to us,” said James Hyman, a UNLV associate professor of psychology and the study’s senior author. “When we’re still and we’re bored, time goes very slowly because we’re not doing anything or nothing is happening.

On the contrary, when a lot of events happen, each one of those activities is advancing our brains forward. And if this is how our brains objectively tell time, then the more that we do and the more that happens to us, the faster time goes.”

In other words, we can choose between a seemingly short but fruitful life, or one long boring slog. Me, I think I’ll fruitfully keep on recruiting.

― Charles Skorina

(download OCIO Directory only as PDF)

Let me tell you about the very rich. They are different from you and me. ― F. Scott Fitzgerald, The Great Gatsby

Suppose the Princeton or Yale endowment investment staff wanted to go all-in on a single stock? Forget diversification and the free lunches, just one shoot-the-moon can’t lose security. Think their trustees would go for it? Can elephants fly? Of course not.

And yet, this is the case for some of the biggest winners in the foundation world, funds like the Jen-Hsun & Lori Huang Foundation and the Lilly Endowment.

So, here’s a question. Does foundation management mirror the personalities and proclivities of their anomalous founders? And, if so, how have these various styles affected investment performance over the last five years?

For example, a preference for public markets versus alternatives, concentration versus diversification, or sports teams and crypto.

Awash in liquidity

Thanks to several extraordinary decades of wealth creation, (present speed bumps aside) private foundations and their ultra-high-net-worth benefactors are flourishing.

Over the last thirty years the number of foundations has tripled from about 40,000 in 1995 with assets of $373.4 billion to nearly 120,000 holding $1.6 trillion today.

Given a record $19.4 trillion in liquid assets in checking and savings accounts and money market funds, an S&P annual return of 9.33% over the last thirty years, and unabated philanthropic zeal among the 225,000 U.S. ultra-wealthy mega-donors, private foundations – the Getty, Casey Family Programs, the Summer Science Program – continue to play a major role in American life.

Jon Hirtle, executive chairperson of OCIO provider Hirtle Callaghan puts it this way:

Foundations are responsible for a meaningful portion of society’s accumulated and monetized patrimony. That financial patrimony is used to enhance social services, the arts, scholarship, research…human progress, if you will.  So, better foundation investing means more human progress.  How about that for an inspiring mission?

Ornery, reclusive beasts

Too many people think investing is easy – Warren Buffett

Guest commentary: Jon Hirtle
Executive Chairman, Hirtle Callaghan

Most universities distribute about 4.5 to 5 percent of their endowment’s value each year to support school operations. The investment office therefore must earn a bare minimum 4.5 to 5 percent to maintain the nominal value of the endowment and its ability to support the university in perpetuity.

But what about purchasing power? Inflation whittles away at buying power or “real” value, so endowments add an inflation component to their earning targets. The average inflation rate since World War Two has been 3.65 percent, a cumulative price increase of 1,653.36%. So, 8 percent would seem to be the minimum return required.

But it’s not that simple. Schools have faced massive cost pressures for years. According to Mercer, “Over the past 40 years, the inflation rate in the US higher education space — as measured by the Commonfund Institute’s Higher Education Price IndexTM (HEPI) — has exceeded the headline inflation rate as measured by the Consumer Price Index (CPI) by almost 40% on a cumulative basis.”

Given this uncertainty, prudent endowment boards aim for returns that include some growth in the capital, at least another 1 percent a year on average to cover contingencies and development. All things considered – operating expenses, financial aid, growth, and the unexpected (Covid cost schools billions) – we think a 9 percent hurdle rate is a more realistic goal.

What to do?

Capital market theory assumes that “the greater the risk that an investment may lose money, the greater its potential for providing a substantial return. Setting aside the historically strong stock market returns over the last decade (and two bear markets in 2020 and 2022) , “since 1950, public stocks have, on average, produced about 6 percent over inflation with one major caveat, there’s lots of price volatility along the way. (Chart: S&P Historic Performance.)

Over that same time horizon, investment grade bonds have on average produced a scant 2 percent over inflation, albeit with far less volatility.

So why not hold 100 percent stock portfolios? The problem is the above-mentioned volatility. The stock market experiences dramatic price drops from time to time, destabilizing budgets and generally scaring the hell out of trustees.

How about adding bonds to dampen drawdowns? Not so fast. Investment grade bonds are indeed far less volatile, but with real returns of only 2 percent, not close to what institutions need.

The Capable, Independent Investment Office

Welcome to my world. How can we capture real endowment returns that exceed what is required while actively managing downside risk? Here’s how we look at it:

We source and select a myriad of compelling investments that complement each other by rising and falling in price at different times, then assemble them in a way that captures stock-market-like returns with something like bond market volatility.

This is no small task. It requires a team of experienced professionals collaborating closely and, ideally, working inside an independent investment office with substantial power.

Only the largest universities have the resources to support such an office. Most endowments and foundations do not. David Swensen described the choice as between “those that are set up to make high-quality active management decisions and those that aren’t.”

Governance Alpha

There is yet another challenge. When endowments fail to achieve their required return over time, the investment staff or the Investment Committee or both are accountable. “Alpha” is investment jargon for value added or subtracted by active investment decisions.

Governance Alpha is a term that we coined years ago to differentiate the impact of committee or CIO decisions from those made by underlying specialist money managers. Just like Manager Alpha, Governance Alpha can be either positive or negative.

When an endowment fails to earn its required return, it is most often the result of Governance Alpha, well-documented behavioral tendencies, present in all humans, which challenge retail investors and endowment committees alike.

For example, “Recency Bias” encourages committees to chase recent returns. Without a seasoned and savvy CIO with the power to check those tendencies, Governance Alpha often turns negative. That’s why a professional and independent investment operation is so important.

The OCIO solution

OCIO firms offer the proven performance of the best large institutional and family investment offices. And they have the resources, talent, structure, and process to deliver those required returns and cope with operational and regulatory burdens and the complexity of modern portfolios.

—Jon Hirtle