Issue Date: March 5, 2007
Publication: Pensions and Investments
ENDOWMENTS
Ex-endowment chiefs take outsourcing role
Former leaders of UTIMCO, Duke among those to be offering strategies to universities
March 05, 2007
A growing number of former endowment investment executives are setting up companies to benefit from the nascent trend toward universities outsourcing their endowment investment offices.
Among the new players close to launching their own ventures is Robert Boldt, former president and chief executive officer of the University of Texas Investment Management Co., Austin — which manages $19 billion on behalf of the University of Texas system.
Mr. Boldt confirmed he will be starting a firm that will provide smaller university endowments with an outsourced investment strategy. He declined to discuss specifics, but generally described it as a fund consisting of various assets classes that will allow smaller university endowments to invest their assets with the same capabilities of a large endowment.
Also said to be going into that line of business is Thruston Morton, former chief investment officer of the $7.5 billion endowment of Duke University, Durham, N.C., who announced his retirement in November. Mr. Morton has teamed up with Stephanie Lynch, former CIO of the Duke Endowment, a $2.9 billion private foundation in Charlotte (no relation to Duke University). Ms. Lynch’s last day at the Duke Endowment was March 2, confirmed a spokeswoman for the foundation.
Neither Mr. Morton nor Ms. Lynch responded to calls for information, but multiple sources said the two will launch their investment firm shortly.
The solid investment performance of larger endowments such as those run by UTIMCO and Duke Management Co. is driving the formation of this fledgling industry.
Substantial gap
“There is a substantial performance gap between the large and small university,” said Mr. Boldt. “Smaller universities don’t have the resources, the staff, or even the access to certain types of investments to produce the same results as larger institutions. Large endowment models are generally more successful because they are more diverse.”
The latest report from the National Association of College and University Business Officers, Washington, firmly supports Mr. Boldt’s claim. Last year, the average annual investment return for a university endowment was 10.7%. The largest universities — those with more than $1 billion in endowment assets — produced an average return of 15.2%, while endowments with less than $100 million generally only produced returns in the high single digits.
Endowments with more than $1 billion have a considerably larger allocation to hedge funds, private equity, venture capital and natural resources, which has driven their outperformance, according to the NACUBO report. Last year, these endowments had an average of 36% of their assets allocation to those four categories of alternatives, compared with only 13.9% for the average university endowment.
The desire for broad investment exposure as well as access to top-tier alternative investment firms has already prompted some endowments to tap one of the handful of investment firms that can run all or a part of their assets.
These firms include Investure LLC, formed in 2003 by Alice Handy, former CIO of the University of Virginia Investment Management Co.; Makena Capital Management, formed last year by former executives at Stanford Management Co., including former president and CEO Michael McCaffery; and Morgan Creek Capital Management LLC, formed by Mark Yusko, former president and CIO of University of North Carolina Investment Management Co.
All have begun to make inroads with university endowments.
Quick growth
Ms. Handy, first of the group to launch her own venture, gained a number of university clients in a relatively short period of time. The firm now manages more than $4 billion for eight different endowments and foundations, said Ms. Handy, including Smith College’s $1.125 billion endowment, Middlebury College’s $887 million endowment, Dickinson College’s $280 million endowment, Barnard College’s $155 million, and the University of Tulsa’s $704 million endowment.
Ms. Handy said the concept of using an “outsourced chief investment officer” has been well-received by a number of institutions — including, “surprisingly, quite a few large endowments with more than $1 billion,” she said. “That wasn’t something I expected.”
Only a few large endowments and foundations have made the decision to outsource their investments to date — Berea College in Berea, Ky., uses Hirtle Callaghan & Co., West Conshohocken, Pa., to manage its $1 billion endowment, said John Hirtle, co-founder and CEO. Mr. Hirtle added that his firm, which was started almost 20 years ago, now provides its services to 97 colleges and universities.
While no hard figure exists, the total outsourced by universities is believed to be just a fraction of the $340.1 billion in total U.S. endowment assets. But Ms. Handy said she is confident it will gradually become a more common practice — especially as more high-profile endowment executives target the market.
“All of these people involved here now are viewed as first-class investors, especially in the endowment world,” said David Morris, a partner in the Houston office of executive search firm Heidrick & Struggles Inc. “Investment outsourcing for endowments is a viable business, it just needs these kinds names and investors with a proven track record before it can really be viewed as an industry.”
Among the new players close to launching their own ventures is Robert Boldt, former president and chief executive officer of the University of Texas Investment Management Co., Austin — which manages $19 billion on behalf of the University of Texas system.
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Also said to be going into that line of business is Thruston Morton, former chief investment officer of the $7.5 billion endowment of Duke University, Durham, N.C., who announced his retirement in November. Mr. Morton has teamed up with Stephanie Lynch, former CIO of the Duke Endowment, a $2.9 billion private foundation in Charlotte (no relation to Duke University). Ms. Lynch’s last day at the Duke Endowment was March 2, confirmed a spokeswoman for the foundation.
Neither Mr. Morton nor Ms. Lynch responded to calls for information, but multiple sources said the two will launch their investment firm shortly.
The solid investment performance of larger endowments such as those run by UTIMCO and Duke Management Co. is driving the formation of this fledgling industry.
Substantial gap
“There is a substantial performance gap between the large and small university,” said Mr. Boldt. “Smaller universities don’t have the resources, the staff, or even the access to certain types of investments to produce the same results as larger institutions. Large endowment models are generally more successful because they are more diverse.”
The latest report from the National Association of College and University Business Officers, Washington, firmly supports Mr. Boldt’s claim. Last year, the average annual investment return for a university endowment was 10.7%. The largest universities — those with more than $1 billion in endowment assets — produced an average return of 15.2%, while endowments with less than $100 million generally only produced returns in the high single digits.
Endowments with more than $1 billion have a considerably larger allocation to hedge funds, private equity, venture capital and natural resources, which has driven their outperformance, according to the NACUBO report. Last year, these endowments had an average of 36% of their assets allocation to those four categories of alternatives, compared with only 13.9% for the average university endowment.
The desire for broad investment exposure as well as access to top-tier alternative investment firms has already prompted some endowments to tap one of the handful of investment firms that can run all or a part of their assets.
These firms include Investure LLC, formed in 2003 by Alice Handy, former CIO of the University of Virginia Investment Management Co.; Makena Capital Management, formed last year by former executives at Stanford Management Co., including former president and CEO Michael McCaffery; and Morgan Creek Capital Management LLC, formed by Mark Yusko, former president and CIO of University of North Carolina Investment Management Co.
All have begun to make inroads with university endowments.
Quick growth
Ms. Handy, first of the group to launch her own venture, gained a number of university clients in a relatively short period of time. The firm now manages more than $4 billion for eight different endowments and foundations, said Ms. Handy, including Smith College’s $1.125 billion endowment, Middlebury College’s $887 million endowment, Dickinson College’s $280 million endowment, Barnard College’s $155 million, and the University of Tulsa’s $704 million endowment.
Ms. Handy said the concept of using an “outsourced chief investment officer” has been well-received by a number of institutions — including, “surprisingly, quite a few large endowments with more than $1 billion,” she said. “That wasn’t something I expected.”
Only a few large endowments and foundations have made the decision to outsource their investments to date — Berea College in Berea, Ky., uses Hirtle Callaghan & Co., West Conshohocken, Pa., to manage its $1 billion endowment, said John Hirtle, co-founder and CEO. Mr. Hirtle added that his firm, which was started almost 20 years ago, now provides its services to 97 colleges and universities.
While no hard figure exists, the total outsourced by universities is believed to be just a fraction of the $340.1 billion in total U.S. endowment assets. But Ms. Handy said she is confident it will gradually become a more common practice — especially as more high-profile endowment executives target the market.
“All of these people involved here now are viewed as first-class investors, especially in the endowment world,” said David Morris, a partner in the Houston office of executive search firm Heidrick & Struggles Inc. “Investment outsourcing for endowments is a viable business, it just needs these kinds names and investors with a proven track record before it can really be viewed as an industry.”
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