Wall Street fights to manage $100bn at endowments

 30 Aug 2016 - 0:00

By Michael McDonald


When the University of Connecticut sought help managing a slice of its small endowment, TIAA found it was competing with 26 other money managers. So the financial services giant sent its biggest gun: President Roger Ferguson, a former vice chairman of the Federal Reserve, to pitch in person.
Helping endowments manage their investments has grown into an almost $100bn business that’s attracted stiff competition from banks, consultants and boutiques. Almost 80 investment firms have sprung up to target foundations, family offices and colleges, up from just a few a decade ago, according to Charles Skorina, an executive recruiter in San Francisco who writes a widely followed newsletter about the endowment business.
Endowments represent just a small corner of the roughly $53 trillion US asset-management business, but they offer a rare area of growth to an industry struggling to compete with index- and computer-driven strategies that are slashing fees. Schools also offer access to wealthy benefactors and trustees who are potential clients. Outsourcers typically take over day-to-day management of the endowments, replacing internal staff as well as outside consultants. “It’s just such an incredibly crowded space,” said Kevin Quirk, a principal at Casey Quirk by Deloitte, a management consultant to fund companies. “By definition not everyone is going to stay in and win and get the scale.”
Kenyon College hired CornerStone Partners of Charlottesville, Virginia, in October to oversee $218m after the school’s chief investment officer retired. Oregon State University asked 15 firms to bid for its $505m fund this year, selecting a division of New York-based Perella Weinberg Partners to replace consultant Mercer, a unit of Marsh & McLennan Cos.
The competition has got so fierce that some endowments are switching firms. The University of the South this year asked six companies to bid for control of its $336m endowment, replacing JPMorgan Chase & Co, which got the business in 2010. The school in Sewanee, Tennessee, picked Edgehill Endowment Partners, co-founded by a former investing chief from Carnegie Corp who trained under Yale University’s David Swensen. “I think we’re going to be very well served,” said John McCardell, president of the liberal arts school. “Just look at the track record of the principals.”
The targets for outsourcing firms are often endowments controlled by volunteer investment committees, or institutions struggling to manage portfolios increasingly loaded with alternative assets such as hedge funds and private equity.
Outsourcing was initially embraced by smaller institutions, but has expanded as markets have grown more volatile. George Washington University opted to shutter its investment office and part ways with its CIO in 2014, hiring Strategic Investment Group of Arlington, Virginia, to oversee most of its $1.6bn fund.
About $100bn has been outsourced in higher education, more than doubling since 2010.
Investure has managed Smith College’s $1.8bn endowment since 2004, producing a 10-year annual average return of 9.5 percent through June 2015, one of the best in higher education. Still, while firms promise endowments access to a wider array of new money managers, it’s not clear they ultimately deliver better performance.
Many newer entrants have little in the way of a track record and said clients’ returns continue to reflect the portfolio they took over. None of the more than a dozen outsourcing firms contacted were willing to disclose their investment performance. They also declined to disclose fees, though some schools said more exclusive firms have charged more than a percentage point of assets under management annually.
Connecticut’s $332m endowment was overseen by the foundation board’s investment committee, which used two consultants and two staffers, said Jerry Ganz, the foundation’s vice president of finance and administration. It had a 10-year annual average return of 4.8 percent through June 2015, he said.
The university decided to outsource a third of the portfolio that included stakes in hedge funds as well as some global equity and fixed-income investments, Ganz said. The rest, including indexed equity funds, private investments in buyout and venture funds, was kept under the control of the foundation, he said.

Bloomberg

By Michael McDonald


When the University of Connecticut sought help managing a slice of its small endowment, TIAA found it was competing with 26 other money managers. So the financial services giant sent its biggest gun: President Roger Ferguson, a former vice chairman of the Federal Reserve, to pitch in person.
Helping endowments manage their investments has grown into an almost $100bn business that’s attracted stiff competition from banks, consultants and boutiques. Almost 80 investment firms have sprung up to target foundations, family offices and colleges, up from just a few a decade ago, according to Charles Skorina, an executive recruiter in San Francisco who writes a widely followed newsletter about the endowment business.
Endowments represent just a small corner of the roughly $53 trillion US asset-management business, but they offer a rare area of growth to an industry struggling to compete with index- and computer-driven strategies that are slashing fees. Schools also offer access to wealthy benefactors and trustees who are potential clients. Outsourcers typically take over day-to-day management of the endowments, replacing internal staff as well as outside consultants. “It’s just such an incredibly crowded space,” said Kevin Quirk, a principal at Casey Quirk by Deloitte, a management consultant to fund companies. “By definition not everyone is going to stay in and win and get the scale.”
Kenyon College hired CornerStone Partners of Charlottesville, Virginia, in October to oversee $218m after the school’s chief investment officer retired. Oregon State University asked 15 firms to bid for its $505m fund this year, selecting a division of New York-based Perella Weinberg Partners to replace consultant Mercer, a unit of Marsh & McLennan Cos.
The competition has got so fierce that some endowments are switching firms. The University of the South this year asked six companies to bid for control of its $336m endowment, replacing JPMorgan Chase & Co, which got the business in 2010. The school in Sewanee, Tennessee, picked Edgehill Endowment Partners, co-founded by a former investing chief from Carnegie Corp who trained under Yale University’s David Swensen. “I think we’re going to be very well served,” said John McCardell, president of the liberal arts school. “Just look at the track record of the principals.”
The targets for outsourcing firms are often endowments controlled by volunteer investment committees, or institutions struggling to manage portfolios increasingly loaded with alternative assets such as hedge funds and private equity.
Outsourcing was initially embraced by smaller institutions, but has expanded as markets have grown more volatile. George Washington University opted to shutter its investment office and part ways with its CIO in 2014, hiring Strategic Investment Group of Arlington, Virginia, to oversee most of its $1.6bn fund.
About $100bn has been outsourced in higher education, more than doubling since 2010.
Investure has managed Smith College’s $1.8bn endowment since 2004, producing a 10-year annual average return of 9.5 percent through June 2015, one of the best in higher education. Still, while firms promise endowments access to a wider array of new money managers, it’s not clear they ultimately deliver better performance.
Many newer entrants have little in the way of a track record and said clients’ returns continue to reflect the portfolio they took over. None of the more than a dozen outsourcing firms contacted were willing to disclose their investment performance. They also declined to disclose fees, though some schools said more exclusive firms have charged more than a percentage point of assets under management annually.
Connecticut’s $332m endowment was overseen by the foundation board’s investment committee, which used two consultants and two staffers, said Jerry Ganz, the foundation’s vice president of finance and administration. It had a 10-year annual average return of 4.8 percent through June 2015, he said.
The university decided to outsource a third of the portfolio that included stakes in hedge funds as well as some global equity and fixed-income investments, Ganz said. The rest, including indexed equity funds, private investments in buyout and venture funds, was kept under the control of the foundation, he said.

Bloomberg