AMA: Endowments, Foundations, & Asset Allocators

It's about time I do another post on here and rather than go into detail on a specific aspect of the industry I'm just going to open it up to a general AMA. The E&F (and asset allocators in general) industry is sort of a black box. Most people don't know a ton about the industry and it isn't necessarily seen as a prestigious opportunity to those gunning for the traditional IB/PE path. When I first entered the industry I didn't expect it to be a long term career, but my perspective has changed significantly.

Read the links below for a general overview of the industry and some thoughts I've had on various aspects. Most of my current work is investing in alternatives (Hedge Funds, Private Equity, Venture Capital, etc.) but I can answer questions related to any asset class we invest in. Ask away.

Overview:
1. http://www.wallstreetoasis.com/forums/endowments-f... 2. http://www.wallstreetoasis.com/forums/endowments-f...

Qualities of a Great Investor:
http://www.wallstreetoasis.com/forums/qualities-of...
Hedge Funds:
http://www.wallstreetoasis.com/forums/random-thoug...

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Comments (30)

Sep 23, 2016

How does pay stack up? Is there a difference between public and private endowments? In your experience, how much security selection/"stock-picking" is done?

Sep 24, 2016

Pay is solid. Big difference in public vs private though. Pensions and public systems are typically known for paying much less than private foundations and university endowments. Public schools will typically pay a little less than private schools but not substantially. Base pay for an entry level analyst at a place like Yale or Harvard is 70k and bonuses tend to range from 10% to 25%. CIOs can make anywhere from 750k to 5mil at most of the top E&Fs depending on performance. Most of that is incentive and I'd say base of 500k to 800k is pretty normal. MDs/Directors make 200-350k base depending on the shop you're at.

Most of these orgs aren't doing stock picking. Most of us run the Swenson model where we invest in a diversified portfolio of managers. Coinvestments are becoming more common but you still aren't doing stock picking there. Harvard is the one outlier known for their large in house arm but there are talks of closing that down. I also have heard that the Ford Foundation manages some equities in house but I don't have any experience with them to confirm how sophisticated it is.

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Sep 24, 2016
BlueWing:

Pay is solid. Big difference in public vs private though. Pensions and public systems are typically known for paying much less than private foundations and university endowments. Public schools will typically pay a little less than private schools but not substantially. Base pay for an entry level analyst at a place like Yale or Harvard is 70k and bonuses tend to range from 10% to 25%. CIOs can make anywhere from 750k to 5mil at most of the top E&Fs depending on performance. Most of that is incentive and I'd say base of 500k to 800k is pretty normal. MDs/Directors make 200-350k base depending on the shop you're at.

Most of these orgs aren't doing stock picking. Most of us run the Swenson model where we invest in a diversified portfolio of managers. Coinvestments are becoming more common but you still aren't doing stock picking there. Harvard is the one outlier known for their large in house arm but there are talks of closing that down. I also have heard that the Ford Foundation manages some equities in house but I don't have any experience with them to confirm how sophisticated it is.

The CIO compensation is a lot higher than I had expected, but you are the expert in this field so will defer. I do wonder at what level of AUM the comp gets that high. Earlier in the year, I interviewed with a few university endowments (not Harvard/MIT/Yale/Princeton, but more like $1-$3 billion range).

Sep 23, 2016

Thanks! So are the investments mostly HF, PE, and separately managed accounts, then? Also, what're hours like?

Sep 23, 2016

hollah to return on net assets and not return on equity

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Sep 23, 2016

what is the traditional background of the CIOs in these endowments/foundations? do these roles hire analysts straight from college? As for experienced analyst hires, where do they usually come from (AM, PWM, IB etc.)?

Sep 24, 2016

I would say probably 75% of CIOs come from the E&F industry. You'll sometimes see CIOs who did something else investment related, but if you want to be an endowment CIO your best bet is to get into the business earlier.

Most hire analysts out of undergrad. University endowment are better about recruiting for these roles whereas some private foundations you'll have to reach out to them. The industry can be a crap shoot to get into sometimes.

Experienced analysts come from everywhere. We've had a few who came straight from IB, one from PE, one from a HF, one from a large asset manager. We use headhunters just like most finance jobs so there isn't necessarily a specific background that is best.

The best advice is that if you know you want to be in this industry get in as early as possible.

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Sep 24, 2016

I've seen E&F analyst job postings say that the position is well suited for people interested in going to top-tier business schools. Is this true in your experience?

Also, is working in any assets class (RE, PE, natural resources, emerging markets, etc) perceived as "sexier" or more interesting than other asset classes?

Best Response
Sep 24, 2016

The bschool aspect was one of the reasons I chose this job. I felt that this would be a differentiatior compared to an IB analyst. I'll be able to answer better after I apply to bschool, but I have seen a lot of E&F analysts get into top programs.

Are certain asset classes sexier? Kind of. Everyone wants to work in alternatives because of their perceived sexiness. Meeting consistently with PE and HF managers is pretty intellectually stimulating and the returns here are typically better. That being said, if you can consistently find traditional public equity managers who are ripping off >100bps of alpha I'd say that's a lot sexier.

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Sep 23, 2016

What goes into selecting the managers you guys allocate money to?

Sep 24, 2016

A lot. It can take years of getting to know a manager for us to allocate. We can also move quickly if the right opportunity presents itself. We're kind of like a traditional equity manager, except we only invest in financial services firms. Heard that analogy at a conference once and I really liked it. Returns are obviously important, but just like you wont invest in an equity based solely on eps growth the same can be said for us. We do a ton of work on market, niche, people, and so on to get a pretty comprehensive picture. We're really trying to find a combination of the best market opportunities and the best managers to execute on that opportunity.

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Sep 26, 2016

Do endowments typically hire people with backgrounds in PE FoFs, Secondaries, Co-investments, etc., or only those from direct PE shops?

Sep 24, 2016

I'd say your chances of getting into the industry is pretty equal from those two backgrounds. Traditional PE is considered more prestigious but FoF work is more relevant to what we do. That being said, if you want to jump into the endowment side I'd do it earlier if possible. Most senior people in the industry have done this for a while and I think that is in part because there is something to be said for working towards a cause, whether a university or philanthropic organization. Most people in the industry know that they could get a job doing the same type of work that pays more at a FoF or large AM, but choose to work for an E&F because of the intrinsic benefits.

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Sep 26, 2016

That makes sense, thanks! How do you position yourself to move from a very good PE group to one of the larger university endowments? Do you have to apply to these things, or is it only via headhunters? Lastly, are endowments active in the secondaries and co-investment space for PE as well? Thanks again!

Sep 26, 2016

Are there dedicated real estate teams? If so how big are they and where do the analysts typically come from into those roles?

Sep 24, 2016

Depends on the place. I know MIT has a dedicated RE team because they own a bunch of land in Boston. My firm and a lot of others I've interacted with will have investors who focus on a few asset classes with RE is one of 1-3 a person works on.

Sep 26, 2016

I have an interview with a firm that does outsourced endowment management on Thursday in New York. It is a small team and their partners formerly had senior roles at large endowments like Princeton, etc. Would appreciate any advice or insights on this world. I come from an investment banking background. Many thanks in advance

Sep 24, 2016

Be able to talk about the markets and if the role is for a specific asset class(es) make sure you know the trends affecting those areas. Focus a lot on the qualitative of an investment. Just because one firm was +10% last year and another was -10% doesn't mean the former is a better investment. If you haven't read Swenson's book I'd get it and at least skim it some. It's basically the bible on endowment management.

I'd also make sure the firm isn't going anywhere. Princeton is top class so if they're from places like that and have AUM I wouldn't worry. Just make sure they either have a decent sized AUM or plans to grow it. A lot of OCIOs have popped up in recent years.

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Sep 26, 2016

Thanks for your advice. I have been trying to read about trends in the endowments space. I know there is this website called Trusted Insights and another called Endowments and Foundations. I would appreciate it if you have any reading material or recommendations on websites. I have not been able to find a great deal of information. If you are not too busy, I would appreciate the opportunity to speak with you briefly today or tomorrow.

Sep 24, 2016

There's not a ton out there on the industry. Lot of people try to stay out of the public eye. Two things I'd recommend reading. First, Swenson's book "Pioneering portfolio management". It's the bible of this industry. Second, you can go to websites of a lot of the top endowments and read their annual reports. This will give you a good understanding of their thoughts.

For anonymity purposes I'm not going to be able to speak with you. But feel free to pm me with any questions you don't want in a public forum.

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Sep 26, 2016

I understand. Thanks very much. I really appreciate it. I will certainly reach out as I continue reading.

Oct 4, 2016

edit

Sep 26, 2016

Thanks again for your help. I made it to the next round of interviews. In my first interview, I ended up speaking with one of the Chief Investment Officers for over two hours!

Oct 15, 2016

Just wanted to say thank you for your two E&F Overviews you did. Those came out right before I started interviewing at the endowment I am currently at, and I found them very helpful.

Just curious, do you attend any NMS or ILPA events? I have missed out due to CFA exams and the birth of my daughter, but am looking forward to going to some in the future.

Sep 26, 2016

Hi all, I am currently interviewing with an endowment and have been asked to work on a few case studies. I have some quick questions. I would appreciate your insights.

I just started working on one of them. They are asking me to analyze a long-only hedge fund and provide my views. Any thoughts or advice about analyzing long-only funds in general?