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September 21, 2015 01:00 AM

California endowment executives facing staff changes, new directions

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    Jose Pantoja
    Jagdeep Singh Bachher

    Top investment executives at two major California universities' endowments are implementing investment changes with new team members after key employees resigned or retired.

    Jagdeep Singh Bachher, chief investment officer for the University of California, Oakland, said in an interview that he also is reducing external equity managers to 30 by the end of the year from 80, the number when he took officially took over the office in April 2014.

    At Stanford University, Robert Wallace, who took over in March as president and CEO of Stanford Management Co., which runs the university's $21.4 billion endowment, also has made staff changes.

    Turnover among senior staff is relatively rare in the world of university endowments, recruiters said, noting that departures can drain institutional knowledge. But different investment approaches can require new skill sets, necessitating hires. In the case of both UC and Stanford, the changes come as long-term investment performance has underperformed other large foundations and endowments.

    “It's safe to say that it's not necessarily the norm to see such wholesale staff changes in endowments, institutions that invest for eternity,” said Michael Castine, partner with recruiting firm Ridgeway Partners, New York.

    Traditionally, he said, investment staff members at endowments tend to stay for the long term, unless they are recruited for a more senior position elsewhere. “You don't see dramatic movement,” he said.

    UC's Mr. Bachher, who is in charge of investments for the university's endowment, which totaled $8.3 billion as of June 30, as well as other university investment pools totaling $100 billion, has other initiatives in mind, including a $1 billion commitment to investing in wind, solar and other sustainable investments and a $250 million commitment to invest in innovation emerging from the university's professors and researchers. He recently announced that UC had sold $200 million invested in coal and oil sands companies.

    He is making those changes with a largely new senior investment team. In some cases, the change in personnel has not occurred without conflict.

    Sources said Mr. Bachher has a forceful style, questioning employees aggressively about investment strategy during staff meetings, some who later left.

    Before joining UC, Mr. Bachher was executive vice president, venture and innovation at the C$80 billion (US $64.5 billion) Alberta Investment Management Corp., Edmonton.

    Mr. Bachher said two key positions were vacant when he came aboard: the head of equities and the head of asset allocation. Mr. Bachher said he spent considerable time in the months immediately after his hiring filling those crucial positions, as well as adding new staff to build investment capabilities, increasing total employees to 68, from 45.

    Shortly after Mr. Bachher arrived, Randy Wedding, senior managing director-fixed income, announced plans to retire.

    Mr. Wedding as well as Melvin Stanton, the associate chief investment officer, had served as interim co-CIOs after Marie Berggren retired as CIO in July 2013.

    Mr. Stanton was asked to leave by Mr. Bachher as were other key staffers, sources said.

    Mr. Bachher said about 10 staffers left; other sources put the number closer to 15.

    Mr. Bachher said most either retired or left voluntarily, although he did say several were asked to leave.

    “The punch line here is a new CIO comes on board and there's naturally going to be a change of guard,” he said. “And most of the senior seats were empty, so my No. 1 priority in the last 15 months has been hiring. And we've hired substantially more people than have left the organization.”

    One of the latest to leave was Lynda Choi, the managing director who ran UC's hedge fund program and departed in July. Ms. Choi could not be reached for comment.

    Ms. Choi was a member of the Office of Investment for 10 years, according to its website. Under her leadership, the endowment's $2.1 billion hedge fund program posted a 6.7% return for the fiscal year ended June 30, compared with the university's custom benchmark of 2.8%, university data show. For the three-year period ended June 30, it had a 10.1% return compared with the benchmark's 4.9%.

    Mr. Bachher's latest personnel move came in June with the hiring of Rick Bookstaber as chief risk officer and managing director of risk management. Mr. Bookstaber was a research principal at the U.S. Department of Treasury.

    Others recent hires include Scott Chan, senior managing director of public equities who had been senior managing director for public equity at the $8 billion Sacramento County Retirement System; Samuel Kunz, the new managing director of asset allocation and investment strategy, who was former CIO of the $2.9 billion Policemen's Annuity and Benefit Fund of Chicago; and Arthur Guimaraes, chief operating officer and associate CIO who had been vice president, investment middle office at AIMCo.

    Meanwhile, at Stanford Management Co., Palo Alto, Calif., which runs that university's $21.4 billion endowment, multiple sources have said in interviews with Pensions & Investments that about half of the 20 investment staffers have left since March, including nine senior managers.

    Brad Hayward, Stanford's senior director, strategic communications, said in an e-mail that the number of employees leaving was “exaggerated,” but did not provide specifics.

    In a statement in July, Mr. Hayward said “it is not unusual for staff changes to occur following a transition in leadership in an investment organization.”

    He said Mr. Wallace had been working since March on an investment strategy that places different demands on the organization. Mr. Hayward declined to discuss that new investment strategy.

    Recruiters who specialize in hiring investment personnel said turnover in general is rare because new CIOs need workers already familiar with endowment operations.

    “It's highly unlikely to see staff turnover because a new CIO would be getting rid of institutional knowledge,” said Charles Skorina, managing partner of Charles Skorina & Co., San Francisco.

    In the case of Stanford Management, Mr. Castine of Ridgeway Partners said Mr. Wallace has a history of using a fundamental, bottom-up approach to investing, the opposite of the macro style prevalent in some of Stanford's past investments. Mr. Castine said that might explain many of the staff changes. “It's not a negative reflection on the staff, it's an investment strategy change,” he said.

    He added that new endowment CIOs are usually given leeway to hire new staffers. “You decide to hire a new CIO, you have to give them the rein to manage,” he said.

    Mr. Hayward confirmed that Stanford Management Co. had hired Greg Milani as a senior managing director and Jay Kang as a managing director. Both had worked with Mr. Wallace at Alta Advisors Ltd., an investment company that managed the money of Swedish industrialist Hans Rausing out of London.

    Mr. Wallace's predecessor, John Powers, had been with Stanford Management for nearly 10 years until he left in March. In August, Credit Suisse announced Mr. Powers would be co-leading a new hedge fund stake-taking business the bank is in the process of setting up.

    The Stanford endowment generated a 14.8% return for the year ended June 30, 2014, the latest year for which numbers are available, compared with a 16.5% return for endowments and foundations with more than a $1 billion in assets tracked for the NACUBO-Commonfund Study of Endowments.

    The University of California endowment chalked up 18.7% return for the same period, according to NACUBO-Commonfund data.

    UC's 10-year annualized performance was sluggish, however, generating a 7.7% return compared with the NACUBO-Commonfund average of 8.2% for the same period.

    Stanford beat the NACUBO-Commonfund average with a 9.9% investment return over the 10 years time frame ending June 30, 2014, but underperformed key rivals, including endowments of Harvard University and Yale University. Stanford's endowment is the fourth-largest in the U.S., with $21.4 billion as of June 30, 2014. Stanford's overall results include the performance of other trust assets.

    University officials have previously attributed UC's underperformance to the fact that it was late to investing in private equity and alternatives.

    UC just released a 7.2% return for the fiscal year ended June 30, 2015.

    Mr. Bachher said in the interview that going forward, the difficulty for him and his staff will be determining how to invest in a low-return environment and meet assumed rate of returns of 7.5%. “The journey has just started,” he said.

    A review of asset allocation for the endowment and other investment pools will be taking place in the next several months, he added.

    The endowment also is working to cut fees of existing external equity managers who are being retained, he said, declining to name those managers.

    “When you go to them and tell them you want to reduce the fees, they tell you to take a hike,“ he said of managers. “When you then say 'we're terminating the relationship,' they say, 'Oh you know what, the fees went down by half.'''

    Mr. Bachher said reducing equity managers and cutting fees are logical moves because the managers “were low-hanging fruit.”

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