Doing Good…and Doing Well:

The world’s largest private foundation, the Gates Foundation in Seattle, is paying its new CEO nearly $1 million per year. Jeffrey Raikes was an early Microsoft employee who rose to the number three job in the company and, according to Forbes, was personally worth $490 million as of 2003. (He’s also a co-owner of the Seattle Mariners — another largely philanthropic endeavor). His predecessor at the foundation, Patricia Stonesifer had taken just a dollar a year during her ten-year tenure.

Mr Raikes led the list among foundation CEO salaries reported by the Chronicle of Philanthropy last month.

The second-highest paycheck went to Joan E. Spero, former head of the Doris Duke Charitable Foundation, who made $770 thousand in 2008. The median pay for private-foundation CEOs was about $460 thousand last year.

Among the community foundation heads, Lorie Slutsky at the New York Community Trust headed the list with $630 thousand.

The survey also noted that foundation chief investment officers often made more than their bosses (which is also the case among the biggest college endowments). Laurance R. Hoagland, CIO at the William and Flora Hewlett Foundation, for instance, made $1,619,904, including his $1 million bonus.

As in the crass for-profit sector, however, the goodies don’t necessarily trickle down to the worker-bees. Back in June, the Chronicle noted that some large private and community foundations were sharply cutting staff. The Robert Wood Johnson Foundation offered buyouts to 43 percent of its 250 employees. The Ford Foundation offered a buyout to 140 of its 550 staff members. And The California Foundation in L.A. cut 44 jobs.


And now some thoughts from clients, colleagues, and passing strangers about the big economic and investment picture in these interesting times:

Have The “Emerging” Markets Finally Emerged?

At the “Eye on Endowments and Focus on Foundations” conference in Boston last month, two prominent CIOs, Don Lindsey of George Washington University and Larry Kochard of Georgetown University, emphasized the need for institutional investors to look outside the US for robust long-term growth.

“The structural changes taking place [in the market] mean that we as investors will need to spend a significant amount of time outside of the United States, not just on the ground, but also as a way to understand the political and social implications of what’s happening abroad,” said Lindsey.

Kochard said, “when I look at the United States and compare it to where we were in 1980, it really is a mirror image of where we are today. [Now] it’s an environment where there’s probably going to be more demand for hard assets, relative to financial assets… But unlike the 1980s, when the U.S. was really the only game in town, today much of the world is a market-based economy.”

Two of my favorite long-time investors in global markets are Chuck Johnson of Tano Capital and Lou Morrell, the recently “retired” head of the Wake Forest Endowment. I spoke to both of them recently about international and emerging-markets opportunities and how institutional investors should be looking at them.

Chuck has been immersed in global markets since the early 90s, when he spearheaded the merger of the Franklin and Templeton mutual fund groups. As co-President of the merged Franklin Templeton, he opened new offices in 20 countries and, with prescient timing, set up the Franklin Templeton India Mutual Fund Company in 1995. It’s now one of the top three domestic mutual fund firms in India.

Lou Morrell was the Wake Forest University CIO from 1995 to 2009. Now, in his new more-active-than-ever “retired” position, he manages about one-quarter of the school’s endowment on an outsourced basis, as well as funds from other individuals and institutions. Lou’s performance at Wake Forest put him in the top tier of investment managers, earning his school the Savviest Nonprofit of the Year award from Foundation and Endowment Money Management magazine in 2006.

Chuck just returned from his latest five week swing through Asia and, although he is in the midst of raising money for his latest India fund, took time to sit down with me and discuss what he sees as the key drivers in the Asian economies.

He says that three factors are paramount in India, China, and Southeast Asia: “First, they are decoupling from the economies of the U.S. and Europe, and they will be able to grow even while we are in the doldrums. Second, their economies are more soundly financed, without our overhanging debt problems. And, most importantly, their demographics and liberalized economies guarantee that tens of millions of young people are going to be climbing into the new middle classes and powering big domestic consumer growth for decades to come.”

Chuck says these trends mean that China will likely overtake the US as the world’s largest economy in 20 years and India will overtake the US within 40 years. He is investing in opportunities across the public and private equity spectrum and sees superior returns for years to come.

Lou, in his November “Capital Market Update” writes that the “outstanding investment opportunities are available primarily outside of the U.S.” He states that the US “economy is weak, the unemployment rate is growing, the U.S. dollar continues to fall relative to other currencies, the federal budget deficit is growing, and at some point, unless interest rates are raised, inflation will appear. To make things more difficult, tax increases are planned that will reduce funds available for investment as the US shifts away from private enterprise to government control.” And finally, “businesses are reluctant to hire because of uncertainty with tax increases and higher healthcare costs on the horizon.”

When I told Lou that, as an American, I found this forecast pretty depressing, he replied: “Just the opposite, Charles; it’s a great opportunity for investing on a global basis. The falling dollar is great for U.S. exporters. There are also new opportunities in healthcare – especially bio-tech, both in the U.S. and internationally. Gold up again this morning – great opportunities in energy. Bets against the dollar also offer big returns. It all looks good!”

These gentlemen are looking into the future, as all investors must. And a quick glance at the recent past seems to confirm what they’re saying.

Take a couple of index-tracking ETFs: one for emerging markets (iShares EEM), and one for U.S. domestic stocks (Vanguard’s VTI). Emergers over five years returned 17.1% per year while the Russell 5000 (tracked by VTI), gave you just 1.9%. Of course, the rap against emerging markets has always been their volatility and, indeed, they were about twice as volatile as U.S. stocks in recent years. Further back, we all remember the crises in Mexico (1994), Southeast Asia (1997), and Russia (1998).

But, Marko Dimitijevic, who runs the $2 billion Everest Capital Emerging Markets Fund (up 65% so far this year), recently pointed out in Barron’s that the term “emerging markets” is rapidly obsolescing. These markets, he says, have become much bigger, more liquid and less volatile than many investors in the West realize. He points out that nearly one-third of the world-equity market cap is now represented by emerging markets.

Just look at the Sharpe ratios to get a sense of their risk-adjusted returns: You got a handsome 0.58 Sharpe for the emergers, and a dismal -0.04 for U.S. stocks. On a risk-adjusted basis you would have gotten a better return holding T-bills for five years than the Russell 5000!

Endowment managers have typically been putting only about 5% to 8% of their portfolios into emerging markets equities in recent years and, as these holdings fatten up, I presume they will tend to follow their long-term gameplan and re-balance back down. I focus on finding the talent, of course, not asset allocations and investment bets, but I have to wonder whether those targets shouldn’t be trending up as we look at the prospects for the next decade.

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