Medical Endowment Fund Manager Selection

Posted on October 15, 2023 by Dr. David Edward Marcinko MBA

Are External Financial Consultants Necessary?

[By Dr. David E. Marcinko MBA CMP]

http://www.CertifiedMedicalPlanner.org

John English, of the Ford Foundation, once observed that:

[T]he thing that is most interesting to me is that every one of the managers is able to give me a chart that shows me he was in the first quartile or the first decile. I have never had a prospective manager come in and say, ‘We’re in the fourth quartile or bottom decile’.

According to Wayne Firebaugh CPA, CFP® CMP™ most medical endowment funds today, even those with internal investment staff, rely heavily upon consultants and external managers.

In fact, a 2006 Commonfund Benchmarks Healthcare Study revealed that 85% of all surveyed institutions relied upon consultants with an even greater percentage of larger endowments relying upon consultants.  The common reasons given by endowments for such reliance are augmenting staff and oddly enough, cost containment.  In essence, the endowment staff’s job becomes one of managing the managers.

Manager Selection 

Even those endowments that use consultants to assist in selecting outside managers remain involved in the selection and monitoring process.  Interestingly, performance should generally not be the overriding criterion for selecting a manager.  Selecting a manager could be viewed as a two-step process in which the endowment first establishes its initial allocation and determines what classes will require an external manager.  The second part of the process is to select a manager that due diligence has indicated to have two primary characteristics: integrity and a repeatable and sustainable systematic process.  These characteristics are interrelated, as a manager who embodies integrity will also strive to follow the established investment selection process.

Of Medical-Managers

In medicine, obtaining the best care often means consulting a specialist.  As a manager of managers, the average endowment should seek specialist managers within a given asset class. Just as physicians and healthcare institutions gain additional insight and skill in their area of specialty, investment managers may be able to gain informational or system advantages within a given concentrated area of investments.

Assessment

Since most plan managers are seeking positive alpha by actively managing certain asset classes, many successful endowments will use a greater number of external managers in the concentrated segments than they will in the larger, more efficient markets.

Conclusion

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6 Responses

  1. John, on October 1, 2010 at 11:29 AM said:

    Fixing Harvard’s Endowment Will Take Years

    Shortly after she took over as chief executive officer of Harvard Management Co. on July 1, 2008, Jane Mendillo gathered the university endowment’s 200 – member staff for a town-hall-style meeting at the Federal Reserve Bank Building in downtown Boston, across the Charles River from Harvard University.

    http://www.fa-mag.com/fa-news/6105-fixing-harvards-investing-failures-will-take-years.html

    What did she say and how long was she given to save the endowment fund?

    John

    Like

  2. Sylvestor, on December 11, 2010 at 3:31 PM said:

    An Investment Code for Endowments?

    Endowments, foundations and other charitable organizations have never had clear blueprints regarding investment management–until now.

    http://www.fa-mag.com/pw-mag/pw-online-extras/6507-pwinsider.html

    Sly

    Like

  3. Leonard, on February 12, 2012 at 1:16 PM said:

    Risk Bites Back
    [Lessons Learned From The Harvard Endowment]

    The success and shortcomings of Harvard’s endowment investing model offers lessons for financial advisors increasingly interested in alternative investments.

    http://www.fa-mag.com/fa-news/9786-risk-bites-back-lessons-learned-from-the-harvard-endowment.html

    Leonard

    Like

  4. Ricardo, on April 12, 2012 at 10:48 AM said:

    Private Equity That’s Publicly Traded

    Remember when endowment-style investment was all the rage? You know, before the market meltdown of 2008-2009? Those were the days when investors clamored for portfolios that looked like those managed for the benefit of Harvard and Yale universities.

    http://registeredrep.com/investing/finance_private_equity_thats/?NL=RGR-06&YM_RID=marcinkoadvisors%40msn.com&YM_MID=1304358

    Now what?

    Ricardo

    Like

  5. Kirk, on April 18, 2012 at 10:51 AM said:

    Leonard

    Topping the list for the richest university in the U.S. is Harvard, a school that’s used to appearing at the top of most college rankings of distinction. The school’s more than $30 billion eclipses the other college’s endowments, so even though the fund saw the lowest year-on-year growth of any school on the list, it doesn’t seem to be in much danger of slipping down in the rankings.

    Kirk

    Like

  6. Dr. David Edward Marcinko MBA, on June 12, 2012 at 12:02 AM said:

    Nobel Foundation to cut prize money by 20 Percent

    Maybe a new fund or portfolio manager is needed.

    http://money.msn.com/business-news/article.aspx?feed=AP&date=20120611&id=15210394

    Dr. David Edward Marcinko MBA
    http://www.CertifiedMedicalPlanner.org

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