Several college and university endowments are boosting internal investment staff in order to cope with the proliferation of asset classes and the growing complexity of managing them.
Industry experts say treasurers are being stretched to the limit by the prolonged bear market, shrinking endowment and pension fund assets, and the growing use of alternative asset classes - along with mounting pressure for transparency in those alternatives.
Alternative investments increased to an average of 32% of the typical educational endowment in 2002, up sharply from 26% in 2001 and 23% in 2000, according to a study by the Commonfund Institute, the research arm of Commonfund, Wilton, Conn.
Contributions are down at most endowments, along with public support, which raises the pressure on financial executives to boost returns. And that requires trained personnel.
It's not yet a wholesale hiring spree, but in recent weeks several endowments have added senior investment professionals, including the $1.5 billion endowment at Brown University, Providence, R.I.; the $643 million Tufts University endowment, Somerville, Mass.; and the $965 million Swarthmore College endowment, Swarthmore, Pa.
In addition, Smith College, Northampton, Mass., is close to adding an investment pro for its $810 million endowment.
Not enough time
Wake Forest University, Winston Salem, N.C., added an assistant treasurer in March to oversee its $800 million endowment assets. Louis Morrell, vice president for investments and treasurer, said the new assistant treasurer would help keep the fund on track with its investment policy and asset allocation. He said overseeing the fund requires substantial analytical work and "I don't have the time."
The trend toward adding specialized investment staff is not new among the very largest endowments, said executive recruiter Susan Fowler, managing director at Russell Reynolds Associates Inc., New York.
What is new, said Ms. Fowler, is the move among lower-tier endowments to bring in senior level investment professionals to oversee endowment and pension assets.
"There are a large number of college and university pension plans that do not have a designated pension officer," she said. "In addition, as the endowments have grown larger over the years, there are no designated chief investment officers; everything is being run by the treasurer. They are finding they need someone like that who can take some of the responsibility for investments. You are starting to see those funds looking for chief investment officers.
"If you look at endowments of $1 billion and under, my guess is that you won't see many right now with chief investment officers. They are starting to look for dedicated investment officers."
But the trend is not limited to midsized funds. The University of Texas Investment Management Co., Austin, which oversees the $8.6 billion University of Texas endowment, is almost done with a complete revamping of its investment staff. Under the direction of Bob Boldt, named chief investment officer at UTIMCO in February 2002, the endowment has been placed under the watchful eyes of five new senior-level managing directors, with three more to be added in the near future.
"What's happening here, and generally, is the old paradigm of having (one person) to watch over equities, fixed income and alternatives has changed," said Mr. Boldt.
"Alternatives is such a large area and takes in such a broad range, it requires more specialization. We've changed our structure to include more specialists at the managing director level: one for public securities (equity and fixed income); co-managing directors for non-marketable securities (private equity, venture capital and other alternatives); marketable alternatives (hedge funds); and a risk manager."
The new managing directors oversee external managers involved in the complex asset classes in which the endowment invests.
"It doesn't matter whether the assets are managed internally or externally, " said Mr. Boldt. "If they are specialized enough, you need someone dedicated to that asset class, especially with a large endowment. You either have a complex, rich asset mix or and commit to that, or you don't. If you commit to having a rich asset mix, you commit to having the people to manage those assets."
The three UTIMCO managing directors still to be hired will oversee a portion of the fund's equity portfolio; inflation-hedging investments such as Treasury inflation-protected securities; and oil and gas, timber and real estate.
David A. Morris, managing partner at executive recruiter Heidrick & Struggles, Houston, which UTIMCO is using for its search, agreed that many endowments are adding to internal investment staff to help them keep pace with increasingly complex asset diversification.
"Our search activity in this space over the last 12 months has been very active," said Mr. Morris.