Hiring up, salaries flat for chief investment officers
Betting on shipping
Hedge funds had a very good year
Inflation may be painful in the developed world, bringing with it a fall in living standards but it also brings a welcome competitive convergence, which will price people back into jobs eventually. When that happens, inflation in the West will get out of control, but for now we have the best of all worlds: inflation rising, interest rates unlikely to rise immediately and an investment boom in its infancy – Crispin Odey, Odey Asset Management, January 31, 2011, comments from 2010 investment letter
Comings and goings:
Boston University hires once more from its muse:
Clarissa “Lila” Hunnewell has just signed on as the new chief investment officer at Boston University after a twenty-year career at Cambridge Associates. Ms. Hunnewell replaced another Cambridge alum, Pamela Peedin, who announced in October 2010 that she had accepted the long vacant CIO position at Dartmouth College. Ms. Hunnewell has an impressive pedigree, a BA from Princeton in ’83 and MBA from Harvard in ’87, as well as her long experience at Cambridge.
In 2009, income from BU’s $1 billion dollar endowment contributed about three percent to the operating budget, tiny compared to many New England schools. But with undergraduate tuition running at about $40,000 per year, every little bit helps. BU is one of the largest private universities in the United States, with over thirty thousand students and is one of Boston’s largest employers.
The school is a little vague on salary data, however, so I checked the latest IRS 990 filing (2009) and noticed that Ms Peedin’s – and I presume, Ms Hunnewell’s – boss at BU, Joseph P. Mercurio , executive vice president (resigned effective 3-11-11), made $519,816 base salary and $961,757 in total compensation in 2008/2009, while the CFO and treasurer, Martin J. Howard, a position lateral to Ms. Hunnewell’s, made $292,733 base and $436,985 total comp. I doubt they have seen much of a raise in the last two years, so presumably Ms. Hunnewell signed on for a total comp package more or less equivalent to Mr. Howard’s.
Commonfund recruits a Wall Street veteran:
If you can’t beat them, hire them. Last month Fredric “Rick” Nelson joined Commonfund as its new chief investment officer, replacing Lyn Hutton, a fourth generation Angeleno, who returned to California as COO of Prager, Sealy & Co, investment bankers to tax-exempt institutions.
Mr. Nelson, a University of Chicago MBA ’81 and Wharton undergrad, held some big-time Wall Street jobs before coming to Commonfund, including six years as vice chairman and CIO of the $165 billion ING Investment Management Americas, four years as Head of U.S. Equity for JP Morgan Investment Management and thirteen years running quantitative strategies for Bankers Trust, .
Commonfund did not reveal any salary data, but sifting through the most recent 990s reveals that the top ten officers in 2008 drew base salaries from $199,470 to $597,660 and total comp from $461,272 to $2,564,817.
Management took some pretty big cuts in bonuses and incentives in 2009 which have yet to be restored, so I can only estimate what Mr. Nelson saw in his offer letter, probably between $600,000 and $1,200,000 in total compensation.
Cleaning the Augean stables – Richard W. Ingram returns to Illinois:
The $33 billion Illinois Teachers’ Retirement System hired Richard W. Ingram as the new executive director two months ago, according to Christine Williamson in Pensions & Investments, January 5th, 2011
He will have his hands full. For the past few years, TRS has been writing and selling derivatives and speculating on the yield curve, and in the process losing their shirts. Adding insult to injury, the state of Illinois has chronically underfunded and over-obligated without regard for the approaching fiscal abyss. A March 2010 audit of the Illinois TRS pension fund, calculated that “future pension obligations are only 39% funded compared to the national average of 82%. TRS has only $28 billion left in assets to pay benefits and is underfunded by $44 billion.”
Mr. Ingram, who drew an annual salary of $150,000 at his prior employer, the New Hampshire pension system (NHPS), will hopefully be getting a raise. As usual, compensation details are hard to come by, but I managed to dig through some freedom-of-information files and found that the last executive, Stan Bauman, who resigned under a cloud, made $232,228.72 in 2008 and the acting executive director and current CIO, Stan Rupnik, received total compensation of $209,697.43 in 2008. I imagine that Mr. Ingram’s pay falls somewhere in between.
The $500 billion dollar Norwegian Pension Fund Global (NPFG), managed by Norges Bank Investment Management, just issued a terse announcement that Bengt Enge, the chief investment officer, and the bank have parted ways.
Mr. Enge spent thirteen years at Norges Bank without any apparent blemish on his record so what happened is anyone’s guess. Nobody is talking. But a half a trillion dollars fund does not have to say much to be heard.
The NPFG holds about 1% of the world’s equities including 1.78% in European stocks. And just last year the Norwegian government gave the fund permission to invest in global real estate, which lead to the purchase last fall of a 25% stake (150-year lease) in The Crown Estate’s Regent Street properties – 113 buildings spread over 39 blocks in the middle of London.
NPFG’s global perspective starts at the top. The CEO of Norges Bank Investment Management, Yngve Slyngstad, in addition to three degrees from Norwegian Universities and one from the Sorbonne, spent two years at UC Santa Barbara, earning an MA in Economics in 1985. I wonder if he misses the beach.
UBS hires from the big house:
UBS Wealth Management just hired Alexander Friedman, the former CFO of the Bill and Melinda Gates Foundation (and former Defense Department assistant in the Clinton administration) as chief investment officer of its wealth management division, along with Mona Sutphen, former White House deputy chief of staff for policy to U.S. President Barack Obama, and Mark Haefele, ex general partner and co-portfolio manager of Boston-based hedge fund, The Sonic Funds. Ms. Sutphen will run macro analysis and Mark Haefele will head investment analysis.
Mr. Friedman holds a JD from Columbia Law School, an MBA from Columbia Business School, and a BA from Princeton University.
The wealth management business can be very profitable. According to Investment News, “UBS earned an ROE of 18 percent in the first nine months of 2010, as the pretax return on equity at the wealth management and Swiss bank unit was 48 percent, compared with 11 percent at the investment bank.” And these returns are modest by historical standards. [See: http://www.investmentnews.com/article/20110207/FREE/110209921]
UBS has taken some big hits over the last few years and seems determined to rebuild the team. These hires should help.
The Investment corner: What’s new under the sun:
Warren Buffett has made “planes, trains and automobiles” the theme of this year’s Berkshire Hathaway annual meeting, according to Bloomberg News. Michael Schwaiger, chief investment officer of the Battelle Institute, on the other hand, likes boats. Specifically, dry bulk cargo ships and tankers.
The Battelle Institute in Columbus Ohio, for those of you who don’t know of it, has about $3.5 billion in investable assets. And although it is a non-profit, the institute generates about $6 billion a year in revenue from various research contracts.
Michael, like every good CIO, is always on the lookout for an edge and not long ago, he found one – dry bulk carriers and tankers.
I asked him how this came about. It turns out, that as the global economy crashed and burned in 2008 and 2009, a lot of new and very expensive cargo ships were put up for auction at fire-sale prices. Some clever bankers at JPMorgan, along with the Greek shipping firm Ceres, recognized a terrific buying opportunity with ships selling for 50 cents and less on the dollar and put together a fund to purchase these boats at bargain-basement prices. Michael heard about the deal from his advisors and, after studying the proposal for six months, recommended that Battelle invest. The board agreed. Assuming the economy recovers, and so far it has, these investments should throw off some very handsome returns.
The “new” chief investment officer:
It’s hard to think about hiring when the news in the US, Middle East, and Japan is so relentlessly gloomy, but institutional investing is a global business and in many parts of the world local economies are doing just fine.
Among the examples:
Asian economies, driven by the China growth machine, are red hot and German exporters are setting new trade records.
Australia and South American countries are exporting raw materials, beef and agricultural products as fast as they can grow and mine the products.
Closer to home, US exporters and corporations with substantial international operations are performing better than ever, with attractive products, lean cost structures, and a weak dollar to help them compete. Moreover, the U.S. has huge energy reserves of natural gas and coal and a vast pool of creative, educated talent which all but guarantees a solid base for the inevitable economic recovery.
Listen to what Lou Morrell (former CIO of Wake Forest University and current private wealth manager) told me the other day. “Charles, speaking as a professional investor and former endowment CIO, this is the best time I’ve seen in forty years to make money. Twenty years ago I never would have thought of investing in Bolivian tin mines or Chinese solar farms. With the job market so soft and global investment opportunities so strong, endowments and foundations should be upgrading and building staff as fast as they can.”
According to Lou, the modern chief investment officer needs to be tactical, versatile, and have the authority to move quickly in and out of investments.
Where to look for a chief investment officer? These days, global macro hedge fund managers have their fingers on the pulse. Many would love the opportunity to give something back by moving to an endowment, foundation, or public pension plan.
Another source, as I discovered anew during my search work for the Casey Family Programs, is the many foundations and endowments with little or no staff, just one lonely, overworked CIO. These are great candidates. When you are thrown into the water, those who don’t sink become very strong swimmers.
So how to build the best investment platform?
Start at the top. Does your board structure and charter permit the kind of flexibility needed in today’s investment climate? If so maybe it’s time to build more in-house expertise. Government pension plans in Canada, the Netherlands, Denmark, and sovereign wealth funds have built up remarkably competent in-house teams that rival any hedge fund or Wall Street investment house.
Get rid of style boxes and rigid allocations. Hire and train versatile, experienced staff with multi-asset class exposure.
I have a vested interest in recruiting investment heads, of course. But I also believe in the old adage, “the better the team, the better the performance”. And right now there is a lot of excellent investment talent sitting on the sidelines waiting to get the call.
A chilly wind from Argentina:
I spent January and February of this year at a lovely estancia, http://www.estanciatierrasanta.com, in Uruguay, just across the River de la Plate from the cosmopolitan metropolis of Buenos Aires. I often visit the region, so I have had a bird’s eye view of economic developments in this European slice of South America.What I saw of Argentina’s economy on this trip was not reassuring.
Argentina’s real rate of inflation hit about 30% last year and it’s climbing fast, according to most economists and the local papers. And with presidential elections scheduled for October 2011, no one expects responsible fiscal or monetary policies to find a home in the “Casa Rosada”.
I first visited Argentina in the late 90s and saw a booming, expensive, European style country with what appeared to be a prosperous economy. Just four years later, when I returned in 2002, middle class people were selling their possessions for food. I was shocked!
When the country collapsed in 2002, the government froze every account, including checking, savings, credit and debit, and grabbed all the cash. In exchange, the government gave their countrymen worthless chits and IOUs.
But just as all looked hopeless, the country caught a lucky break. Not long after the crash, Nestor Kirchner, the newly elected president, defaulted on the country’s debt for the fifth time in its history, stemming the cash hemorrhages. And then, a surge in crop and commodity prices began to replenish government coffers, laying the groundwork for a fresh start.
Unfortunately, stories about Argentina seldom have happy endings. Just as the citizens began to relax, the populists policies of the current president, Christina Kirchner (Nestor’s widow) – price controls, trade restrictions, rampant patronage, and government seizures of pensions and bank reserves – have yet again impeded investment, provoked labor unrest, and stoked inflation.
When faced with criticism, President Christina Kirchner’s position has been simple and consistent, “are you going to believe me, or your lying eyes”.
I hope my lying eyes don’t see the same events unfold in the USA.
Hedge fund returns: How sweet it is. –Jackie Gleason
It’s still OK to make money in America.
According to the Wall Street Journal front page, January 28, 2011. “Hedge-fund manager John Paulson personally netted more than $5 billion in profits in 2010-likely the largest one-year haul in investing history, trumping the nearly $4 billion he made with his “short” bets against subprime mortgages in 2007.”
Mr. Paulson is just one example. Bloomberg Markets magazine, February 2011, just released their 100 best performing hedge funds in 2010 and the returns are impressive.
But as the article points out, when it comes to generating fees and personal income, size matters.
Take Don Brownstein at Structured Portfolio Management LLC, the number one performer on Bloomberg’s list. Don manages $2 billion in five partnerships and his flagship fund, the Structured Servicing Holdings LP, returned 50 percent in the first 10 months of 2010, putting him at the top of the list of the 100 best-performing hedge funds managing $1 billion or more.
This 50 percent gain through October earned Brownstein’s investment team a relatively modest $87 million in fees, according to Bloomberg data.
However, the most profitable fund in 2010 was Ray Dalio’s Pure Alpha II, contributing $2.25 billion to Bridgewater Associates’ coffers. Another Bridgewater fund, Pure Alpha 12% was No. 3 on the list earning an additional $428.6 million in fees for Bridgewater’s piggybank. In total, Bridgewater manages $60 billion in hedge funds, making it the biggest hedge fund firm by assets.
Another perennial money machine, Steve Cohen’s SAC Capital International, was the second-most-profitable fund, earning $1.1 billion in fees through the first 10 months of 2010.
As the Bloomberg article points out “because of hedge funds’ fee structure, managers need healthy returns on a large pool of client cash to make big money. A 5 percent return on $10 billion is better than a 50 percent return on $100 million.”
As an aside, I noticed that of the top ten best performing funds, only one, AQR, eschews marquee billing and simply cites “team managed” instead of highlighting individual managers.
You can read all about it at: http://cache.dealbreaker.com/uploads/2011/01/BLOOMBERG-MARKETS-The-100-Richest-Hedge-Funds-February-2011.pdf
Bloomberg Markets Top 10 best performing [AUM, YTD performance %, 2009 performance %]
1 Structured Servicing Holdings, Don Brownstein, William Mok, Structured Portfolio Management, U.S. Mortgage-backed arbitrage [1.2bn – 49.5% – 134.6%]
2 Russian Prosperity, Alexander Branis, Prosperity Capital Management, Russia emerging markets [1.1bn – 39.3% – 195.2%]
3 Pure Alpha II, Ray Dalio, Bridgewater Associates, U.S. Macro [34.0bn – 38.0% – 2.0%]
4 Ikos FX, Elena Ambrosiadou, Ikos Asset Management, Cyprus Currency [1.2bn – 30.5% – 18.1%]
5 Cevian Capital II, Christer Gardell, Lars Forberg Cevian, Capital, Sweden Activist [3.9bn – 29.8% – 35.7%]
6 AQR Global Risk Premium, Team managed, AQR Capital Management, U.S. Macro [3.7bn – 27.3% – 21.2%]
7 Nisswa Fixed Income, Steve Kuhn, Pine River Capital Management, U.S. Mortgage-backed arbitrage [1.2bn – 27.0% – 92.0%]
8 Third Point Offshore, Daniel Loeb, Third Point, U.S. Event driven [2.2bn – 25.2% – 38.6%]
9 Autonomy Global Macro, Robert Gibbins, Autonomy Capital Research, U.K. Macro [1.7bn – 24.7% – 69.0%]
10 Linden International, Joe Wong, Linden Asset Management, U.S. Multistrategy [1.1bn – 23.4% – 72.9%]
Bloomberg Markets Top 10 most profitable (in millions)
1 Pure alpha II, Ray Dalio, Bridgewater Associates, U.S., $2,254.2
2 SAC Capital International, Steven Cohen, SAC Capital Advisors, U.S., $1,082.0
3 Pure alpha 12%, Ray Dalio, Robert Prince, Bridgewater Associates, U.S., $428.6
4 BlueTrend, Leda Braga, BlueCrest Capital Management, U.K., $309.1
5 Cerberus Institutional Partners Series IV, Stephen Feinberg, Cerberus Capital Management, U.S., $300.0
6 OZ Master, Daniel Och, Och-Ziff Capital Management, U.S. $287.5
7 Elliott International, Paul Singer, Elliott Management, U.S., $259.6
8 Paulson Credit Opportunities, John Paulson, Paulson & Co., U.S. $236.2
9 Canyon Value Realization, Joshua Friedman, Mitchell Julis, Canyon Partners, U.S., $222.2
10 Thoroughbred, David Tepper, Appaloosa Management, U.S., $215.5