11/07/2022

No matter who you are, most of the smartest people work for someone else.  — Bill Joy

Large family offices over $5 billion AUM with five or more years of experience running in-house direct investing programs now have the data to assess their efforts.  From what we hear, for many families, it’s just not worth the effort.

Attribution studies conducted recently by a number of family office investment staffs conclude that they would have been better off buying an index.

Our clients and contacts cite three reasons for their disappointment, public market performance, high costs, and competition.

A few caveats. We usually provide data to back up our thesis, but in this case, due to the sensitivity of our sources (i.e., the career limiting nature of any disclosures), our comments will have to be anecdotal.

Also, the SFOs we spoke with on background regarding direct investing made their money from tech, energy, and manufacturing, not finance.

It’s tough to beat public markets

US equities set a particularly high hurdle for performance this past decade and over longer periods remain a hard mark to beat.

Here’s a snapshot of the S&P over the last twelve years along with some international peers.

(S&P 500 12-yr performance 2022)

Lamentably the stock market took a nasty fall this year after capping an extraordinary run in 2021, but for long term investors it’s hard not to embrace public equities.

Since 1945 the S&P increased on average about 11% annually, posting an inflation-adjusted return of 7.14% per year.  More than enough to provide comfortable payouts for generations of happy heirs.

High costs

 

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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.

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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.

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