Paying Managers of Complex Portfolios: Evidence on Compensation and Performance from Endowments

We examine compensation for endowment Chief Investment Officers (CIOs) overseeing portfolios with significant allocations to alternatives. We find widespread use of bonuses and that large endowments with high alternative allocations hire CIOs with stronger backgrounds, pay them more, and have higher pay-for-performance sensitivity. We find weak evidence of a relationship between compensation and future performance. Our results align with contract theory predictions but differ from empirical findings on pension funds. Endowments pay CIOs more, rely more on bonuses, attract more experienced professionals, and have lower turnover than pensions. This suggests more effective talent management compared to politically influenced public pensions.

Keywords: Alternatives, Bonus, Compensation, Endowments, Performance, Skill

JEL Classification: G23, J24, J31, J33, J44

Suggested Citation: Suggested Citation

Binfarè, Matteo and Harris, Robert S., Paying Managers of Complex Portfolios: Evidence on Compensation and Performance from Endowments (December 15, 2019). Journal of Financial and Quantitative Analysis, Forthcoming , Kenan Institute of Private Enterprise Research Paper No. 20-01, Available at SSRN: https://ssrn.com/abstract=3504212 or http://dx.doi.org/10.2139/ssrn.3504212