Though the idea of a CIO sounds like the right move given the current financial state of most small- to mid-sized colleges and universities, HR budget and resources are also constrained, with many institutions saying they’re already having a hard time finding the money to pay a decent salary for good professors.
However, according to Plympton, a good CIO will generate far more income for the university than his or her salary will cost.
“While that could be thought of as true for faculty as well (in that students are paying tuition to study with that person), the connection is much more diffuse,” she explained. “With investment professionals, the generated returns are clearly visible, and comparable to other institutions’ returns, overall market returns, et cetera. An investment professional who generates positive returns relative to the market on an institutional endowment will almost certainly make more for the institution that he or she is being paid.”
Another concern deals with the roughly translated notion that you never see a psychic winning the lottery, or a stock broker too wealthy to work.
In other words, if CIOs can supposedly help institutions make money, why are things so crappy currently?
Well, just like stock brokers (staying mum on psychics) there are good ones and bad ones, said Plympton. But there are indicators institutions can use to tell whether or not a CIO has what it takes:
1. Compare returns to the overall investment marketplace.
2. Compare returns to those of other institutions of a similar size.
3. Compare the returns to those that would have been generated by a more “passive” approach, without a full-time CIO.
“It’s also important to remember that endowments are held ‘in perpetuity,’ so investment performance needs to be measured over long time frames; 7-10 year cycles are generally expected in the investment marketplace, so historical performance over at least that long a time frame needs to be analyzed in order to discover whether the strategies have been successful,” she noted.
One example of a small- to mid-sized institution employing a CIO is Lafayette College, which recently hired their investment professional this past spring (2014).
Part of the college’s reasoning in hiring a CIO is to take a more hands-on and comprehensive approach to hiring investment leaders.
Like other institutions currently filling the investment role, they needed someone who represents the “best of both worlds—who understands their mission but has proven financial savvy and success,” said Plympton.
By working with search firms such as Witt/Kieffer, institutions are using more sophisticated interviewing, referencing, and assessment methodologies than in the past, she explained.
“These tools not only help them gauge potential new leaders for cultural fit, but also delve into how leading Chief Investment Officer candidates have conducted themselves in previous positions, and how they have made tough decisions and learned from their experiences.”
Plympton concluded, “It’s a matter of getting qualitative and quantitative information to support the institution’s instincts about who is the best hire.”