Category: News Excerpts

By Aziza Kasumov August 19, 2019

“It’s common for universities to seek to hire in-house investment staff when their endowments grow to a certain size,” which Chris Cutler, founder of search firm Manager Analysis Services, previously pegged at between the $500 million and $1 billion range. (For example, Mount Holyoke College this summer conducted a search to hire its first CIO, after the school’s endowment grew to roughly $780 million in 2018, as reported.)

By Aziza Kasumov July 23, 2019

“If [the endowments] get bigger … is their staff going to continue to grow and grow and grow? That didn’t turn out to be the case,” Tom Donahoe, managing director of outsourced CIO (OCIO) search and governance at Manager Analysis Services, tells FundFire.

The size of an in-house investment office appears to have a “definite ceiling,” Donahoe and Chris Cutler, founder of Manager Analysis Services, write in the research paper.

Manager Analysis Services looked at 35 organizations, with assets ranging from $90 million to $11.3 billion, purposefully leaving out outliers such as the wealthiest Ivy League schools and other mega endowments. The firm also broke out the staff structure for the 10 largest endowments in its sample size, which revealed that even among in-house teams north of the $1.5 billion asset mark, resources might be tight.

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Manager Analysis Services’ research also laid out sample organizational charts for endowments of varying asset sizes. An organization with around $11 billion in assets under management typically had a CIO, four or five people in senior management, two people in operations, and an executive assistant, says Donahoe. “That leaves you with … five people who are doing stock analysis, and they only have a certain bandwidth, as talented as they may be,” Donahoe says. “Even if you have this person on your staff, they’re not sitting there 40 hours a week analyzing managers,” he adds.

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For both traditional and alternative managers, “this space is more limited then you might be thinking,” says Cutler. “If you’re a well-known name, you have a tremendous advantage,” he adds.

The limited resources may provide opportunities for OCIO providers to secure mandates from large endowments, according to the report, which notes that there’s a “tug of war” over whether in-house or OCIO works best in the $750 million to $1 billion AUM range. That asset range was much lower a couple of years ago and has steadily climbed up, both Cutler and Donahoe say.

By Lydia Tomkiw | 7/3/19

…Allocating to a large, multi-strategy hedge fund is a safe bet for many institutional investors, says Chris Cutler, president of Manager Analysis Services.

“It’s a safer investment decision in a sense: the returns are strong, the resources are there, most will pass operational due diligence. The terms are something people might struggle with if they look closer,” he says referencing fees, transparency, and liquidity terms. “But if something were to go wrong with a hedge fund like that, the investors wouldn’t be alone in sharing that problem.”

…Mutli-strategy funds have also benefited from broader trends driving talent toward their model. The tough odds of raising enough capital – $500 million to $1 billion – to have a sustainable, long-term business model, has given an edge to the multi-strategy space as a destination for investment pros aiming to run a portfolio, Cutler says.

“With respect to hedge fund managers who might otherwise set up their own fund, they are spared all the challenges of running their own businesses,” he says. This is why multi-strategy funds have succeeded in attracting top talent, he adds.

FundFire, by Aziza Kasumov

Bundled fees are becoming somewhat obsolete.  We are seeing them less frequently and more as a shorthand in discussions during the early stages of an OCIO search.  As OCIO clients focus on obtaining greater price transparency, we are helping them obtain and properly evaluate each of the component parts of total fees.  

With bundled fees, you have an inherent conflict in that any price concessions obtained from underlying managers, may not be passed on fully to the client.  These price concessions typically are due to economies of scale and the buying power of an OCIO. Moreover, allocations might be influenced to go to the manager charging a lower fee.

We believe there are times where it is prudent to pay more for better managers, better access, or to obtain a better portfolio.  As Investment Committee members become more sophisticated, they are using the growing transparency to better negotiate appropriate fee levels. (6/29/19)

By Aziza Kasumov | 6/21/19

…It’s not atypical for an endowment of Mount Holyoke’s size to start building out its own investment office, says Chris Cutler, founder of search firm Manager Analysis Services. “Between $500 million and $1 billion, that’s the range where we tend to see things go in-house,” Cutler says. For endowments between half a billion and two billion in assets, investment offices hire between three to eight staffers, with a cluster around four to five, he adds.

“Three to four is my guesstimate” in this case, Cutler says.

The internal team should give Mount Holyoke more leeway to act quickly when investment opportunities present themselves, especially in the private space.

“They’re often only open for limited windows of time, and those don’t necessarily correspond with an investment committee’s decision-making process,” Cutler says. With an in-house team, the school should be able to “take better advantage of those opportunities,” he adds.

FundFire, by Aziza Kasumov 

Institutional investors are increasingly paying attention to how they might unwind their outsourced CIO (OCIO) relationship – even as they’re just getting started with a new provider. The heightened focus comes after a generation of early OCIO adopters realized that it can take years to get out of some holdings, and they can still incur high fees for “legacy funds” that their old OCIO administered, search consultants tell FundFire.

“It’s very easy to sign up a new OCIO, but the exit strategy is a very critical deficiency,” Tom Donahoe, Managing Director of OCIO search and governance at Manager Analysis Services, said at an OCIO Solutions Summit last week  Donahoe said that often institutional investors don’t discuss exit language “when they jump into an OCIO agreement.” But once a provider is terminated, it’s “pencils down.” That creates “slippage where you can lose real value over a two or three week transition period simply because people are taking their eye off the ball,” Donahoe explained. (shortened for brevity) (6/17/19)

By Alyson Velati | 1/30/18

“…A CIO can essentially help the committee interpret and understand what their OCIO is advising for the portfolio,” Chris Cutler says.

“Cost is certainly one important ingredient people care about, which is one of the advantages of having an in-house investment staff,” says Chris Cutler, president of Manager Analysis Services. “But, I’m seeing a dynamic shift where some boards don’t really have the governance capital to be able to administer decisions in a way as it should be done, so they’re making the switch to an OCIO.”

By Lydia Tomkiw | 12/5/18

…Watch lists can have a ripple effect and cause other investors in funds to reexamine their own investment decisions, says Chris Cutler, president of Manager Analysis Services. “It will cause other allocators to question their own allocations to those managers. It’s not positive publicity,” he says.

By Danielle Verbrigghe | 11/9/18

… “Every Rocaton client has a fiduciary duty to review their appointment of Rocaton,” said Christopher Cutler, founder of investment consulting firm Manager Analysis Services, in an email.

By Alyson Velati | 10/18/18

…“They want the consultant to travel 12 times per year, cover all expenses, perform a ton of work that is unique to Tampa and review alternative investment strategies,” says Christopher Cutler, president of Manager Analysis Services, via email. “They are getting what they pay for.”