Being too far ahead of your time is indistinguishable from being wrong — Howard Marks

Our latest fiscal year-end 2024 endowment performance report features ten-year and one-year returns, and AUM for one-hundred-forty-four US and eight Canadian institutions, the latest available.

In our line of work, acquiring talent and capabilities for institutional and family office clients, we like hard data on the individuals who drive the investment decisions.  Returns may be historical, but they are useful clues to an investor’s – and board’s – views, process, and discipline.

We consider a ten-year span to be a rigorous and revealing measure of the strength of an institution’s long-term investment abilities, but we remind our readers that there’s much more to the story.

Board members and administrators set the parameters for investment execution, and they are the ones to judge whether their goals are met.  Every school has its own endowment payout rate and tolerance for risk and that’s what CIOs aim for.  Some schools rely heavily on income, others place more weight on growing the principal.

A tale of two markets

For those institutions holding substantial U.S. public equity stakes life is sweet.  As Chris Markoch at MarketBeat writes, the S&P was up twenty-three percent in 2024, “driven by earnings growth and sector leaders in AI, biopharma, and blue-chip companies.”

Sometimes it’s best to run with the herd, to paraphrase our Mr. Marks.  But for endowments with heavy exposure to alts, particularly private equity, there were challenges.

PE has performed well for forty years.  But there are periods when the economy tanks, deals stagnate, and returns to investors slow to a trickle.

Here’s Peter Lynch’s droll take on fickle Mr. Market, and a few partisan comments on PE from Alisa Amarosa Wood and Chris Harrington, partners at KKR, and Ludovic Phalippou, professor of Financial Economics at Saïd Business School, University of Oxford.

Opposing pundits aside, we take comfort in the chart below, a cheerful visual we ran in September’s newsletter from MFS investment Management depicting the S&P’s bumps and grinds.

S&P 500 Index cumulative returns for 1-, 5-, and 10-year periods following end of bear market

Tenure and Turnover

What a difference a decade makes.  Only about a third of the CIOs in our FY2024 endowment investment report logged ten years or more tenure, and those are mostly the ones on top.

Mr. Philip Zecher, CIO at Michigan State University, and our featured guest below, will soon pass the ten year mark and the endowment’s splendid performance reflects his time and attention.

Chief investment officers new to the position, Ms. Geeta Kapadia at Fordham for example, barely have time to roll up their sleeves and grab a pitchfork.  It takes five years at least to clear, plough, and seed an endowment, and five more to fully bear fruit.

College endowments consist of thousands of gifts with strings and legally binding contracts attached.  To repeat a well-worn trope, it takes years to fully implement a multi-asset, multi-generational investment strategy and altering course mid-stream – a new investment chair, a change in CIOs, court battles – can sap performance for a decade.

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Phil Zecher, chief investment officer

Michigan State University

“If I had asked my customers what they wanted they would have said a faster horse.” —Henry Ford

If you were sitting on a college board today, would you take a chance and hire a young David Swensen or Paula Volent to manage the money?  Radical thinkers cut from uncommon cloth?

Let’s reframe the question.  If institutional investing is all about finding alpha and maintaining an edge, why are so many tax-exempt institutions investing and hiring alike?

Almost forty-five percent of U.S. tax-exempt money is invested with just ten active managers, nearly double the amount two decades ago.  To quote one reader’s response to our recent query, “everyone’s in the same funds and there’s leverage everywhere.”

(click link for chart. Data from P&I, chart by Robert Snigaroff, President & CIO, Denali Advisors)

In theory, pensions, endowments, foundations, and the like seek active managers to obtain above-market returns.  In practice, that doesn’t seem to be how it works.

A former large endowment CIO mentioned recently that his team would scour the globe for unique opportunities, but the first thing his trustees would ask when told of any rare find was “what other endowments have invested in this?”

Safety in numbers

Most trustees accept the position because they love their institution, and often pay for the privilege, but the reputational risks of sitting on a nonprofit board outweigh the rewards.  Media assassinations felled some well-meaning board members recently.

Let’s be honest.  If the David Swenson of 1985 applied for a CIO position at Yale today, he would not survive the first round of interviews — a young untested Wall Street banker, working on something called interest rate swaps?  No way.

And how about Paula Volent, for twenty years the preeminent CIO at Bowdoin College, currently at Rockefeller University?  Year after year she has crushed our endowment rankings.

But she was an art history major running a West Coast fine arts conservation business before her swing to a Yale MBA and money management.  Would any college board dare hire someone with that background and mid-career makeover today?

The horns of our dilemma

Here’s our challenge. If boards want a “faster horse” they may not appreciate being shown EVs.

Our pool of investment talent includes hundreds of tax-exempt endowments, foundations, public and private pensions, health systems, associations, and charities, and thousands of for-profit analysts and managers at funds, family offices, OCIOs, RIAs, Wall Street banks, and asset managers.

Yet roughly sixty-five percent of endowment hires come from other endowments, a safe and like-minded cadre of about a hundred candidates.

But that’s not the only bottleneck. In the E&F world, men are twice as likely to land a chief investment officer position as women despite a near fifty-fifty split in staff roles. Our women in finance report focused on the time it took the double X cohort to reach CIO positions.

We counted heads and reviewed backgrounds and what did we find? Most female chief investment officers had an additional five to ten years of work history on their resumes compared to the men. In other words, the men were younger than the women when hired for CIO roles – ten years on average – with less experience.

And forget that hackneyed trope about taking a break for babies. Most served hard time at Morgan Stanley, Montgomery Securities, Goldman Sachs, and other financial firms while raising a family.

The gist is that board members seem more inclined to take a chance on younger men than younger women, which leaves fifty percent of the talent pool out to dry. We who recruit investment talent for industry-leading firms, funds, and families have learned that gender has no bearing on investment performance.

Words worth repeating

For those of us that hunt talent for a living, character, compatibility, and content are key.  Character embodies the qualities that define the individual, compatibility – that elusive emotional IQ that Daniel Goldman writes about –  builds trust, and content is knowledge and experience accumulated over a lifetime.  

Mellon’s John Hull Tops Non-Profit CIO Pay Rankings

Institutional Investor – March 15, 2012  •  Frances Denmark

Charles Skorina had a problem. As an executive search consultant specializing in filling investment officer holes at pension funds and endowments, he was often asked by boards of trustees to produce metrics to aid in candidate comparisons. But in his 30 years in the search business, such data had proved hard to come by ­— that is, until late January. That’s when Skorina’s “CIO Performance-for-Pay” ranking (see chart below) hit the institutional investor zeitgeist.

Bloomberg: Help Wanted on Campus

By Gillian Wee – Aug 18, 2010

Bloomberg Markets Magazine

Top U.S. universities are looking for a new breed of investment manager who can be nimble in tough times.