The Skorina Letter No. 1

Charles Skorina looks at people and issues in the world of Endowments, Foundations, Hedge Funds and Alternative Investments.

I keep my recruiting business focused on the investment management niche, and one reason is the amazing diversity of the people I deal with every day.

Where else can one find such a clash and ferment of ideas as among chief investment officers, portfolio managers and traders? The fact that they seldom agree is what makes markets work, and makes my job fun!

In the foundation and endowment world, managers have had to re-think their business and muster some creativity after the Great Blow-Out of 2008. Three recent CIO moves suggest how some of them are grappling with the problem of maintaining returns, managing risk and reducing expenses.

Carla McGuire, former CIO at Indiana's DePauw University, moved to Hammond Associates in June. From her new desk in St. Louis she will still manage the $427 Million DePauw portfolio, while opening up her practice to new clients. Carla will be the first Hammond exec to offer "fully-outsourced" investment management to a mid-sized institutional client, one step up from the advisory services Hammond has traditionally offered. After six years at DePauw following five years at the University of Chicago endowment, heading for St. Louis is a homecoming for Carla, a St. Louis University MBA graduate.

Chris Bittman, University of Colorado Foundation's former CIO, moved to investment bank Perella Weinberg Partners, but he's not leaving town. Chris, a Colorado alumnus, will head up a new Denver office for Perella, an international firm headquartered in New York. Perella has an institutional asset management arm, and Chris will be heading up their endowment-management group. Colorado is outsourcing management of their whole $870 Million endowment pool to Chris and Perella, which will ensure continuity of Chris's deft hand while offloading the cost of an in-house investment office. Chris became UCF's first CIO in 2004, and in 2007 they were named “Large Foundation of the Year” under his leadership.

Lee Partridge. The most interesting move of all, however, is the departure of Lee Partridge, deputy chief investment officer of the Teacher Retirement System of Texas in August to launch Integrity Capital LLC. His first investor just happens to be the San Diego County Employees Retirement Association which recently shut down a long running search for a CIO. Why the move and outsourcing arrangement? It turns out that the SDCERA can’t pay enough for a CIO in house due to a county salary cap, so the pension board will let Integrity run the 6.5 Billion fund for roughly a million dollar fee. I wonder when and how this idea came up, and who thought of it?

This kind of wholesale outsourcing of the CIO function won't appeal to all non-profits, but it is clearly something that some mid-sized funds are going to be looking at. Carla, Chris and Lee now have new opportunities for professional development and scaling up their best ideas, while institutional clients gain options for managing the assets.

========================================

And now some thoughts from clients, colleagues, and passing strangers about the big economic and investment picture in these interesting times:

Chuck Johnson, the head of Tano Capital, focusing on growth markets in India and China and real asset investments, and a long time veteran of the mutual fund and hedge fund industry, points out in a recent newsletter that although we seem to have dodged a bullet with this latest crash and recovery, we should be very careful before we congratulate ourselves, because it could always get worse.

He writes “To put the crash of 1929 in perspective, the poor souls in the 30’s witnessed a decline in values very similar to what we have just gone through in the last year, and then from that point on, witnessed another further 74% decline over the next three years on top of what they had already experienced.”

Why do I keep looking over my shoulder?

Doug Metcalf and Bill Lawton of Seagate Global, a private equity fund focused on mid-sized investments in China and the Philippines, spend eight months a year on the ground in Asia. From vast bamboo plantations in China to commercial and industrial developments around the old US Clark Military Base in the Philippines, they tell me that from what they see, these two Asian economies are growing with hardly a hiccup. Money, a young population and relentless development offer a completely different investment climate from what we are seeing in Europe and North America.

Wanda Dorosz, the CEO of Quorum Funding, a Toronto-based private equity/venture capital fund has invested in private companies in the oil and gas technologies sector for years. The need to pull more and more oil from harder-to-reach places a huge premium on new detection and extraction technologies. She believes that betting on the best of these is going to offer solid returns in the next decade.

Backing up her investment thesis, the Financial Times pointed out the other day in their LEX column that. “ The majors’ [oil companies] most important work consists of incremental technological grind, rather than finding sleeping giants [new oil fields]”.