The cautious seldom err or write great poetry. – Howard Marks’ favorite fortune cookie, Dare to Be Great II

J.P. Morgan Chase is king of the realm these days, but during my time at Chemical Bank there were other big dogs walking the “Street.”

The neoclassical, money-minting, “House of Morgan” sat kitty-corner to our headquarters at 20 Pine.

Next door, David Rockefeller’s baronial fiefdom, the sixty-story, glass and steel slab, One Chase Manhattan Plaza, towered over Chemical’s pre-war high-rise and Jean Dubuffet’s tangled abstract, Group of Four Trees, flipping us off from the courtyard.

And uptown, Manufacturers Hanover lent to the corporate elite from their Park Avenue perch, eyeing with distain Chemical’s middle-market rabble. While high above the fray, Walter B. Wriston’s Citicorp lorded it over us all.

But in the end, Chemical smelled blood, devoured their unwary prey, and for desert had its way with the Morgan name. If you can’t beat them, eat them. J.P. would understand.

That thing called “edge”

Mark LaMonica, Director of Product Management at Morningstar, describes the elusive, hard to define attribute called “edge” as better information, analytics, or behavior. But no one in the investment industry ever built a great business without another edge we call “guts,” the confidence and courage to take a chance.

With vast, industry-wide reserves of talent and resources, the odds of any single firm vaulting organically over the competition are slim to none without disruptive technology, blockbuster products, or an unbeatable track record.

But, disruptive technologies and blockbuster products – computers or ETFs – come around maybe once every fifty years, as Angelo Calvello points out in Institutional Investor. And, while consistent, multi-decade investment superiority isn’t impossible, it’s exceedingly rare.

Promises kept

Jon Hirtle, executive chairman of OCIO firm Hirtle Callaghan considers investment management a mission and describes the stewardship of client wealth as “promise-driven” investing.

When we ask our clients which risk matters most, they almost always place “mission failure” at the top of the list. Serious investors care deeply about keeping their promises.

Those promises can be tallied up to calculate a “required return.” Achieve that required return and we can fulfill our promises; fail to achieve it and we are likely to disappoint the people and causes we love.

But here’s the challenge. To endure and deliver on those promises made, which course can overcome the all-too-common clutch of complacency?

M&A or the highway

History doesn’t repeat itself, but it often rhymes. – Mark Twain?

My grandmother, born in 1896, used to describe recessions as panics – economic brushfires stoked by a bank collapse or two and lurid headlines of panicked customers storming the ramparts, window jumpers, and families in ruins.

The newspapers had a field day flogging the latest hearsay and then it all blew over, but rumors and innuendo were never good for business and banks were always suspect.

It wasn’t until the countrywide “Bankers Panic” of October 1907, triggered by a massively leveraged attempt to corner United Copper Company stock, that political and business sentiment finally coalesced around legislation leading to the Federal Reserve Act of 1913.

As an aside, the right to vote “without regard to sex,” otherwise known as the 19th amendment, passed final muster on August 18, 1920. And it was not long after that my grandmother accepted a steady teaching position at Michigan Agricultural College (aka Michigan State University) and cast her first ever vote for Calvin Coolidge in the 1924 presidential election.  Progress in fits and starts, but progress, nevertheless.

Bygone family conversations came to mind as I scanned the headlines last week.  Labor market healthy.  Don’t be so sure.  Stock market shaky.  What to do?  Rates?  Who knows.  And beware a looming venture capital apocalypse.  Retreads, recycled, reprinted.

But, inevitably, far from that madding crowd, each new generation of investors and entrepreneurs has something inventive in mind, quietly creating those next big things, building a better tomorrow.

In our line of work, acquiring talent and capabilities for institutional and family office clients, we see a steady flow of quality candidates, OCIO mandates, and appealing acquisition opportunities.

2024 is looking good.  Recruit, consult, connect.  We’re here for you.

– Charles Skorina

*Images: The 1907 Crisis in Historical Perspective, The Center for History and Economics

The optimist thinks this is the best of all possible worlds. The pessimist fears it is true. – J. Robert Oppenheimer

In the late 80’s Don Valentine, founder of Sequoia Capital, asked me to stop by his office for a chat. I was recruiting for venture capital firms at the time while writing on the side for the San Jose Mercury News and had quoted him in previous pieces.

Once we settled in he announced with gruff solemnity that there was too much money chasing too few good startup opportunities. And that was not likely to change.

Keep in mind, this was only a few years after Sequoia had bankrolled Atari, Apple, and Cisco Systems. But for some reason he voiced deep concern. (Rising valuations and increased competition might have also sullied his mood.)

Whatever his reasons, we all know what happened in the decades that followed: invention and innovation, blockbusters and unicorns, thousands of jobs, billions in wealth. Silicon Valley’s cauldron of creation.

And yet, despite America’s world-beating record of entrepreneurial alchemy “It’s like déjà vu all over again,” to quote the inimitable Yogi Berra. You would half think the media pundits were praying for a recession, better yet, end-of-days.

Fortunately, the American consumer seems to have other plans. Hiring is brisk, investment performance strong, inflation down, startups pitching, and rates plausibly dropping.

“Since the Great Depression of the early 1930s there have been 14 US recessions.” Yet, despite the challenges, with each rebound life just gets better.

We’re betting on a sunrise tomorrow.

All the best for the holidays. And here’s to a fine 2024.

 — Charles Skorina

Price is what you pay. Value is what you get. — Warren Buffett

What do chief investment officers earn at nonprofit institutions? We recruit these executives for a living, so we avidly track their pay and performance. In this letter, we highlight the compensation of fifty chief investment officers and investment heads at private US foundations.

Many nonprofits, family offices, and Wall Street firms employ top investment professionals, but it’s difficult to extract meaningful data on compensation from reluctant sources. Ergo, we go with what we can get.

In this comp report we’re going with a revealing data set from our good friend John Seitz, CEO of FoundationMark. We wrote about Mr. Seitz in last month’s newsletter on “Foundation Investment Performance,” and we think his research and rankings are useful companions to our endowment studies, of interest to asset owners and all purveyors of investment products and services.

The Bigger the Better

Nonprofit investors wear many hats but have essentially one metric by which they are judged, long-term performance. However, that does not seem to be the metric for how they are paid. When it comes to compensation, size matters.

A few years ago, we ran some correlations using our archival datasets to see how pay correlated to AUM, tenure, and performance at endowments.

The coefficient for AUM to comp was 0.69, which is moderately high. But tenure and performance did not appear to have much impact on CIO pay. In most cases, size trumps all other metrics.

Our correlations

Comp-vs- AUM:  0.69

Comp-vs-Tenure: 0.31

Comp-vs-5yr Returns: 0.27

Kevin Hallock, President, University of Richmond, an expert in the field of executive compensation, and author of “Pay: Why People Earn What They Earn and What You Can Do Now to Make More,” puts it this way:

A lot of other people are trying to be brilliant. We’re just trying to stay rational. – Charlie Munger

At a BlackRock investor conference a few weeks ago, President Rob Kapito mentioned that in 1995 seven percent yields were ripe for the taking and today, almost thirty years later, it’s back to the future with those same seven percent yields.

What to make of that?  Maybe some historical context would help, so we thumbed back to those bygone 90s and the near-after for insight.

This is what the California Legislative Analyst’s Office wrote. “Following a sharp slowdown in late 1995, the economy regained momentum during 1996. Despite considerable quarter-to-quarter volatility during 1996, real gross domestic product (GDP) grew by about 2.5 percent for the year as a whole.”

Meanwhile, college endowments were killing it.  For the $400 million and over cohort (the big dogs at the time), NACUBO reported 19.5 percent in fiscal year end 1996, 21.6 percent in 1997, and 19.4 percent in 1998.

Back in the present we have two wars raging and Grinch-level consumer sentiment of 60.4.  Nevertheless, from our standpoint as search consultants, hiring for senior investment talent remains strong and OCIO outsourcing shows no signs of slowing.

As Larry Siegel, the Gary P. Brinson director of research at the CFA Institute Research Foundation, pointed out the other day in his review of “Henry Kissinger on the Promise and Threats of AI,” the human race was toast about 70,000 years ago, contracting “to the point where we can see the residue of the “bottleneck” in the genes of people living today.” And yet, here we are.

I met a host of smart, upbeat, hard-working professionals at the NYC conference, all working on a better tomorrow. As for BlackRock?  When the company went public on October 1st, 1999 at 14 bucks a share and AUM of $165 billion, Fed funds were at five and a quarter percent. Twenty-four years later, the stock closed at $724.64 (November 21st) and the firm manages $9.42 trillion (June 30th). It’s all good.

Happy Thanksgiving and best wishes for the holidays.

— Charles Skorina