Q&A: Investment Director at a mid-sized endowment fund

Chronic lurker here. I recently accepted a position at an endowment fund. Didn't see a lot of info. here on endowment fund investments - so ask away any questions you have. As background, I am responsible for all of the endowment's alternative investments (private equity, private debt, real estate, infrastructure and hedge funds). It's a $2.5bn fund that does some pretty exciting stuff - we invest through primary funds, secondaries, co-investments, direct deals, club deals etc. A small team of eight is responsible for all investment decision making.

 

Few questions: What are hours/compensation/b-school exits like out of an endowment? Also, how does one get recruited by an endowment? Lastly, what is your reasoning for joining an endowment as opposed to being at a FoF/secondaries/co-invest/direct shop (maybe pros/cons)? Thank you!

 
Best Response

Its a standard 40 hour work week, although this could be a function of being in a second tier city. During deal closing, it can go up to 60 hours.

Compensation - 70k for analysts (+10-20% bonus), 120k for associates (+20-40% bonus), 180k for directors (+50-100% bonus), CIO - $320k - bonus is highly dependant on fund performance.

B-school exits: tend to vary by the quality and prestige of the endowment. If you work at the endowments for Harvard or Yale, pretty much any b-school is open to you. Analysts from our endowment have gone on to HBS, Wharton, Stanford, LBS and Insead. We have also hired post-mba grads from those schools.

Recruiting: I think it varies widely but as far as I know, most rely on recruiters and their own networks. I came from a very unusual background (operational due diligence on alternative investment managers) but I had close relationships with a number of key people at the firm.

As mentioned before, coming from a non-investment related background, I did not really know what kind of investing I wanted to do. The reasoning for taking on this role is that it would give me a flavor for all of the kind of investments that you mentioned (although very few endowments have such a broad mandate). I have been here for less than a year and I have closed on a fund investment, a secondary, a GP restructuring transaction and two direct deals.

 

Its a fairly unique in that it is a private family / foundation type structure. But we also manage a small amount of external capital from a few private universities.

Analysts usually come from a MM IB / consulting background. Occasionally, we will hire analysts straight out of undergrad. Associates are usually post-MBA candidates / experienced IB associates or have some other type of endowment / FoF / pension plan experience. I should note that its not usual for an endowment fund to hire experienced IB candidates - we do that since we our pay structure at the Analyst / Associate level is at the upper end for comparable institutions.

 

I came from a fairly atypical role - I worked at a consulting firm that did operational due diligence on alternative investment managers (hedge funds, private equity and real estate firms).

We split all investments into public and private. For publics, its all external managers. For privates, we do manage money "in-house" in that we source and execute on private equity, real estate, infrastructure and secondary deals.

 

How does the operational due diligence process work? Are you essentially looking at their risk management systems and giving recommendations to endowments/foundations? I have been working as an analyst at an endowment for a year, we don't use consultants for anything so I'm not too familiar with what the process would look like.

 

What type of direct investments does your fund usually make? Does your fund do exclusively equity investments? Is there an industry focus to your direct deals or is it more generalist?

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To provide some context on your question, we try to model our private portfolio to the pension plans in Canada and Middle East - those guys know what they are doing when it comes to LP investing. So much like those plans, we have a completely open mandate when it comes to direct deals - no industry, geography or transaction type is off-limits. Direct deals can be both in equity or debt investments (anywhere within the capital stack).

Over time, this has lead to an interesting and varied direct portfolio - we own everything from CPG companies in the US, Asset Management / private equity firms in Europe, private debt in energy companies in Australia to toll roads, broadcast towers and power plants across the world.

 

This question requires more introspection that I am used to but I'll give it a go.

  1. Favourite part - meeting with some really intelligent and successful people in the world and doing business with them. Since our ticket sizes are at the higher end of a typical LP, I get direct and unfettered access to the Founder / CEO / CIO of whatever company or fund we are looking at. Least favourite part - this one's hard; I can't really think of anything substantial. One thing that gets to me is how cost conscious some of these endowments can be (especially compared to my previous experience at a consulting firm) - no business class flights and $70 per diem sucks.

  2. As mentioned before, I have been in this role for only less than a year. So I have not yet given much thought to next steps yet. Based on previous departures at the firm, there are a couple of avenues open to me including CIO at another LP (pension plan, endowment, SWF), senior level IR positions at private equity, RE, infra firms, or even to the GP side at a PE firm focused on co-investments (think Partners Group, Pantheon, GCM Grosvenor). Its unlikely that I would get in at GP firm that would require me to source private deals. My ideal next step would be a lateral move to a SWF in the Middle East or Asia.

  3. Another tough question - I don't really know. Ideally, and this is the end goal for a lot of people, I'd like to start my own business. I have not given much though to what shape or form that will take. Unless I feel I am being truly intellectually challenged, its unlikely that I would consider working for someone else long-term.

 

I can't comment much on the typical timeline just because it is so variable. Depends on a ton of factors - number of layers between Analyst and CIO (could be anywhere from 1 to more than 8-9 in my experience), size of endowment, geography and turnover. Also, I have almost never seen an Analyst or Associate be able to work their way up to CIO. For whatever reason, most LPs prefer to hire externally when there is CIO turnover. Not saying that it's always the case - I have never come across one.

What it takes to move from Analyst to CIO - this is a good question. As you can imagine, the skillset that makes a good Analyst is definitely not enough to be a good CIO. The typical Analyst performs the grunt work - cash flow modeling, calculating IRRs, multiples, vetting funds from a quant perspective etc. As you move up, the focus shifts to qualitative due diligence - understanding the market and being able to quickly and effectively evaluate funds and deals becomes more important. As you move up further to CIO or equivalent, the focus shifts again to deal sourcing and relationship building - knowing the senior professionals at other LPs / GPs and understanding and getting access to the deals we are interested in becomes more important. No matter how many layers a LP firm has, this is pretty much the three stages you need to go through to become a good LP investor.

 

Thanks for doing this AMA.

What does your analyst program look like 2 years? 3 years? What type of backgrounds do analysts at your firm typically have? Do the analysts stay on and move up in your endowment or do they move on to other roles? If they do move on to other roles, what type of other roles?

 

Analyst programs are usually two years - analysts come from MM IB or tier 1 consulting roles. Occasionally, we will hire out of undergrad. Analysts who perform well are encouraged to stay at the firm and are promoted to Associate after 2-3 years. We don't place a lot of value on MBAs although it does not hurt - designations such as CFA and/or CAIA are seen as more relevant for the job. I'd say about half of all analysts have stayed on and the remaining went to b-school, GP side or to a bigger LP.

 

First, thank you for doing this AMA. There is an acute deficit of endowment/foundation/pension information sharing on this site, and your knowledge and perspective are very helpful.

Which business schools do you hire from? Are there bands for analyst/associate base and bonus comp, or does a 3rd-year associate make the same as a 1st-year associate, all else equal?

 

Happy to help. For undergrad, we go to H/Y/P + Wharton and a few local schools. There are no bands on compensation - everything is at the discretion of the CIO. There is an automatic 5%-7% pay bump every year - so all else being equal, a 3rd year associate will make more than a 1st year associate. However, the difference in comp should be minimal. One other point on comp. - and this is gold if you can get this at an endowment (impossible at a pension) - is that directors and the CIO have the ability to personally invest in co-investments. As you can imagine, if you have good PE managers, this can have a significant positive effect on overall comp.

 

Could you share little bit more about the recruiting? Does your fund, or endowment funds in general hire directly out of MBA? What would you recommend for someone entering a top MBA program (M7) to prepare and pivot himself towards role in funds like yours, especially if someone doesn't have background in banking or Asset Management?

 

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