About $100 billion has been outsourced in higher education, more than doubling since 2010, according to data compiled by Bloomberg using surveys from the National Association of College and University Business Officers and Commonfund.
Track Records
Investure has managed Smith College’s $1.8 billion endowment since 2004, producing a 10-year annual average return of 9.5 percent through June 2015, one of the best in higher education. Still, while firms promise endowments access to a wider array of new money managers, it’s not clear they ultimately deliver better performance.
Many newer entrants have little in the way of a track record and said clients’ returns continue to reflect the portfolio they took over. None of the more than a dozen outsourcing firms contacted by Bloomberg were willing to disclose their investment performance. They also declined to disclose fees, though some schools said more exclusive firms have charged more than a percentage point of assets under management annually.
Connecticut’s $332 million endowment was overseen by the foundation board’s investment committee, which used two consultants and two staffers, said Jerry Ganz, the foundation’s vice president of finance and administration. It had a 10-year annual average return of 4.8 percent through June 2015, he said.
The university decided to outsource a third of the portfolio that included stakes in hedge funds as well as some global equity and fixed-income investments, Ganz said. The rest, including indexed equity funds, private investments in buyout and venture funds, was kept under the control of the foundation, he said.
Finalists Pitch
Ganz declined to disclose specific fees, saying the proposals ranged from 0.25 percent of assets under management to 0.75 percent, which would equal as much as $750,000 a year for the university. The fee is less than what the two consultants were paid, he said.
After the university whittled down the bidders to three, the finalists went to the Storrs, Connecticut, campus to make their pitch. TIAA, which started its outsourcing business in 2011 with $1 billion of seed capital, brought Ferguson.
TIAA won the bid. Kevin Nee, CEO of Covariance Capital Management Inc., TIAA’s subsidiary that manages the assets, declined to discuss Ferguson’s presentation or fees charged. Covariance, which initially focused on clients with more than $100 million, customizes the portfolios, Nee said in an interview. “The work is the same regardless of size,” he said.