The Skorina Report: Exodus From The Stanford Endowment

iStock_000015824104XSmallRobert F. Wallace, the new head of Stanford Management Company, has been aggressively culling his staff since he was appointed in late March.
This has not gone un-noticed by the media, and we can now name more names and connect more dots.
Last year, before Mr. Wallace succeeded John Powers, SMC had about 22 investment staffers (excluding operations, HR, the CFO, etc.).
Four were in the top tier as Managing Directors.  Now only one of that original group remains.
Departing MDs were: Craig Blanchard, Saguna Malhotra, Martina Poquet, and Wafa Wei.
(Ms. Poquet was reaching retirement age, so her departure this month may not have anything to do with the CEO shift.  Mr. Blanchard left last year, after the announced departure of Mr. Powers, but before the arrival of Mr. Wallace.  In January he joined Makena Capital, an asset manager founded by Michael McCaffery, former CEO of the Stanford Management Company.  So, these two moves should not be construed as part of the “great purge”.)
Last year there were seven staffers with the Director title; now only four remain.
Departing Directors were: Vera Kotlik, Karen Horn Welch, and Joshua Richter.
Last year there were four staffers titled Manager; three remain.
The departing Manager: Ben Chiquoine,
At the junior level there are four Associates/Senior Associates and, as far as we know, all four are still in place.
So, six senior staffers (ignoring Ms. Poquet and Mr. Blanchard) have left since April and we believe they were all pushed out by Mr. Wallace.  That’s about one third of the pre-Wallace senior staff roster.  And, we suspect, one or two more may be contemplating an early departure.
Managing Directors at SMC have a base salary of approximately $400K and a bonus opportunity of another $400K, for a total comp of about $800K.  Directors have a base of about $250K and a bonus opportunity of $250K, for a total comp of about $500K.
The departures were partly offset by two new faces Mr. Wallace brought with him.
 
Greg Milani, who was Mr. Wallace’s right-hand man at Alta Advisers in London, was appointed Senior Managing Director, which makes him the highest-ranking staffer.
Mr. Wallace also tapped Jay Kang as a new Managing Director.  Mr. Kang is a Yale grad (class of 2002, same year as Mr. Wallace) who worked at the Yale Investment Office under David Swensen.  More recently Mr. Kang was number-two at the Hilton Foundation in L.A. under CIO Randy Kim (who is another Swensen/YIO alumnus).
Stanford Management Company: Comings and Goings

Departures in 2015
Rank
Portfolio
Background
Education
1
Saguna Malhotra
MD
Private Equity
Ripplewood Holdings
BA, U Penn
2
Wafa Wei
MD
Marketable Securities
Lehman Bros
MBA, U Chicago
BS/PhD, U Mich
3
Vera Kotlik
Dir
Portfolio Mgmt
Barclays Cap
BS, SUNY
4
Joshua Richter
Dir
Public Equity
MBA, Dartmouth
BS, Cornell
5
Karen Horn Welch
Dir
Portfolio Strategy
Packard Fdn
MA, Harvard
BA, Bucknell
6
Ben Chiquoine
Mgr
Portfolio Strategy
Federal Reserve Board
MS, Stanford
BA,Colorado Col
Other Departures:
1
Craig Blanchard
MD
Real Estate
Townsend Gp
MBA, Stanford
BA, UCSB
2
Martina Poquet
MD
Separate Invests
BA, Stanford
Hires in 2015
1
Greg Milani
SrMD
Not Stated
Alta Advisers 
2
Jay Kang
MD
Not Stated
Hilton Fdn
MBA Yale
BA, Yale

The Ballet Connection:
When the Wallace hire was announced Mr. Powers said “I’ve known Rob for many years and have great respect for his work.”
One assumed he was referring to Mr. Wallace as a peer investment manager.  Wallace had run the $12.5bn Hans Rausing fortune, through Alta Advisers, the London-based family office for the Rausing family.
But there was more to it than that.  Mr. Wallace was a professional ballet dancer for 16 years before launching his investment career, including a slot with the American Ballet Theatre.  When he hung up his dancing shoes and moved to London he served as a trustee of the English National Ballet and a governor of the Royal Ballet School.
Now, it happens that Mr. Powers and his family are also deeply immersed in the tight-knit world of ballet.  Mrs. Millicent Powers is president of Ballet San Jose.  And their daughter Emma Powers is an accomplished professional ballerina.  She is one of only two American women to ever graduate from the Bolshoi Ballet Academy in Moscow.
We have it on good authority that Mr. Powers presented Mr. Wallace to the SMC board, and it’s plausible that their acquaintance through the ballet world played a part.  How hard he championed Mr. Wallace and, indeed, how much influence he still had with the board at that point, we don’t know.
People we talk to say that the SMC board and its chairman Hamid Moghadam and Bruce W. Dunlevie, head of the CIO search committee, have been driving the changes at the endowment and that Mr. Powers has had little to say about personnel or policy since his departure was announced.  Mr. Moghadam, a Stanford MBA, is founder and CEO of San Francisco-based Prologis and holds $130 million of its stock.  He also sits on Stanford’s senior board, the Board of Trustees.
So, what, exactly are Mr. Wallace and his board sponsors up to?  Where are they aiming SMC policy?
 
Swensen again:
The answer to that pregnant question seems to be: SMC wants to reverse-engineer the Yale Investment Office in Palo Alto.
Sources tell us that Mr. Wallace and the Alta portfolio had been hewing closely to the Yale model, right down to the specific managers, and the results were good.
“Alta was a direct clone of the Yale endowment,” according to our sources “.  They even used many of the same external managers.”
If that’s the case, then the SMC board certainly knew it and it’s hard to avoid concluding that still another Yale clone is exactly what they had in mind when they tapped Mr. Wallace.
There is nothing remarkable about such a yearning.
Stanford has done quite well over the past ten years.  They handily beat three of the other top-four endowments and are well above average for all big (over $1 billion) schools.  But they still fall short of Yale on both an absolute and risk-adjusted (Sharpe Ratio) basis.
See our complete one, five, and ten year review of Ivy League endowment performance through FY 2014.
Four Largest U.S. Endowments 
(10-yr returns through FY 2014)

Endowment
President/CIO
10-yr 
Rtn %
10-yr Sharpe Ratio
2014 AUM $bn
Harvard
Jane Mendillo
8.9
0.59
$36.4
U Texas
Bruce Zimmerman
7.9
0.66
$25.7
Yale
David Swensen
11.0
0.72
$23.9
Stanford
John Powers
9.9
0.66
$21.4
NCSE Endowments >$1bn
NA
8.5
0.59
NA

And hiring a Swensen-trained CIO has become almost de rigeur among ambitious nonprofit boards.  Mr. Wallace is just the latest among a distinguished host.
Yale Investment Office Alumni Serving as CIOs
(In order of appointment)

Chief Investment Officer
Institution
Start
Date
AUM $bn
Yale Grad
Yale Degree
1
Dean, Donna
Rockefeller Fdn
1995
$4.1
(NO)
2
Golden, Andrew
Princeton U.
1995
$21.0
1989
MPPM
3
Volent, Paula
Bowdoin College
2000
$1.2
1998
MBA
4
Alexander, Seth
MIT
2006
$12.4
1995
BA
5
Kim, Randy
Hilton Fdn
2008
$2.7
2004
MBA
6
Martin, Anne
Wesleyan U.
2010
$0.77
(NO)
7
McLean, Mary
Kauffman Fdn
2012
$2.1
1994
PhD
8
Ammon, Peter
U. of Penn.
2013
$9.68
2011
MA
9
Wallace, Robert
Stanford U.
2015
$21.4
2002
BA

We’ve already noted that one of his first hires was his Yale classmate Jay Kang, who also worked under Swensen, and then under Andy Kim at the Hilton Foundation.
Further evidence was provided by a Wall Street Journal piece last month revealing that one of Mr. Wallace’s first publicized moves is a $200 million investment in Hillhouse Capital Group.  This is the $18 billion vehicle of Chinese investor and entrepreneur Zhang Lee.
Mr. Zhang, be it noted, is a Yale grad and was himself an intern at the Yale Investment Office under David Swensen.
As the Journal notes: “Mr. Zhang was so enamored of his time at Yale that he named his firm after a two-block avenue that cuts through the university’s New Haven, Connecticut, campus.  As a graduate student at the university, Mr. Zhang translated Mr. Swensen’s 2000 book, “Pioneering Portfolio Management,” into Chinese.  Doing so required him to create new Chinese characters for the English words “endowment” and “fiduciary,” according to the university.  In 2010, he gave a $8,888,888 gift to the business school, a number that is considered to carry good fortune in Chinese culture.  It was one of the largest-ever donations from a graduate.”
Mr. Zhang doesn’t admit many new investors, sometimes just one per year, but Stanford easily made the cut.
Of the four major endowments investing in Hillhouse (MIT, Princeton, University of Pennsylvania, and University of Texas), every one of them except Texas is run by a member of the Swensen Diaspora.
We rest our case.
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One Comment

  1. Barclay
    November 23, 2015 at 5:46 pm

    Doing proper variation margin “tailing” of arb exposures was probably a lesson learned more on the way up back in 1980 than on the way down (when such tail hedging would have hurt).

    Maybe the better lesson overall from this distant mess is that arbitrageurs who had been long silver in other physical forms (like coins and candelabras) versus short futures contracts trading at a premium to theoretical value hadn’t been able to just bank their money on their arb set-up in all environments. Unable to morph that silver into proper deliverable form for the exchanges, futures variation margin calls had really mattered. The rule changes enacted by the Exchanges at the time actually saved the day for these arbs.

    But in America, are sudden rule changes in the heat of market battle to favor one market participant over another really appropriate – even when made to create a more desired short-term market outcome?

    Note to Fed after having imposed QE1, QE2, QE3 in subsequent modern times: “Watch out for the unintended consequences of aggressive regulatory actions. Shifting the playing field too much in the short-term tends to still cost something in the long-run.”


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