TIAA-CREF Plans Expansion With Investment Management Team for Endowments

TIAA-CREF, the New York-based firm that oversees more than $400 billion in pensions for teachers and academic researchers, named Scott Wise of Rice University to oversee an expansion into investment management for endowments.

Wise, 60, has run the Rice endowment since 1989 and will oversee a new endowment group from the university’s hometown of Houston, TIAA-CREF said today in a statement. He will start next month, said Abby Aylman Cohen, a spokeswoman for the company.

TIAA-CREF, founded in 1918 by Andrew Carnegie as a pension fund for professors, is the largest provider of retirement plans for employees of academic, medical, cultural and research institutions. Its endowment push follows similar moves by Goldman Sachs Group Inc. and Pacific Investment Management Co., which are courting the funds as they assess their investments after record losses in the financial crisis.

“It is a natural extension of their franchise in the academic community, to trade off their reputation,” Burt Greenwald, an independent fund consultant based in Philadelphia, said in a telephone interview.

U.S. institutions will shift more than $500 billion to outside fund managers by the end of 2012, according to estimates by Casey Quirk & Associates LLC. Most outsourcing candidates are smaller organizations with assets of $250 million to $750 million, which may not be able to afford to hire top managers internally or don’t have the clout to get into the best- performing investment funds, the Darien, Connecticut-based consulting firm said.

Fending Off Competitors

The endowment-management group, which will operate independently of TIAA-CREF’s retirement-plan business, will offer clients customized asset allocation and access to “some of the best-in-class managers across a range of traditional and alternative asset classes,” the firm said in the statement. It’s using executive-search firm Russell Reynolds Associates to recruit money managers from colleges and foundations.

TIAA-CREF, whose assets rose 17 percent to $426 billion at March 31 from the end of 2008, has 3.7 million investors. Former Chief Executive Officer Herbert Allison, now assistant secretary for financial stability at the U.S. Treasury, added a wealth- management division and began selling products from outside money managers to hold onto clients.

That was necessary after mutual-fund competitors began marketing to TIAA-CREF’s college and university customers, consultant Greenwald said. Former Federal Reserve Governor Roger Ferguson Jr. succeeded Allison as CEO in April 2008.

TIAA-CREF managed $26 billion in publicly listed mutual funds as of the end of April, with net deposits of $2 billion this year, said Courtney Dobrow, an analyst at Morningstar Inc. in Chicago.

‘Decent, Steady Performers’

“Their funds are decent, steady performers, but not necessarily leaders of the pack,” Dobrow said in a telephone interview. “That’s consistent with their reputation.”

Endowments have outperformed market indexes by following a style pioneered by David Swensen, Yale University’s investment chief. The strategy relies on alternative assets including commodities, real estate and private equity. Some of those hard- to-sell holdings fell more than public stocks and bonds during the financial crisis that started with the collapse of the U.S. housing market in 2007.

Rice’s endowment dropped 18 percent in the year ended June 30, 2009, when the fund was valued at $3.6 billion, according to the school’s website. The endowment had an average annual gain of 6 percent in the past decade, beating its benchmark by 3.3 percentage points.

That compares with the 12 percent average increase over the same period at Yale of New Haven, Connecticut, the top- performing endowment, and the 8.9 percent return at Harvard University, in Cambridge, Massachusetts, the wealthiest U.S. school.

Goldman, Pimco

University funds lost an average of 19 percent in the year ended June 30, according to the National Association of College and University Business Officers, based in Washington, and Commonfund in Wilton, Connecticut. It was the biggest annual loss in the 35 years for which records have been kept.

Goldman Sachs, the most profitable securities firm in Wall Street history, is courting endowment executives to join its asset-management group as part of an effort by the New York- based company to expand into the market, three people with knowledge of the search said in April.

Pimco, led by Mohamed El-Erian, the former Harvard University fund chief, in March hired Gregory Hazlett as head of equity strategies and Andrew Hoffmann to oversee real-asset investments. They report to Mark Taborsky, an executive vice president at the Newport Beach, California-based firm and a former Harvard endowment manager whose fund-of-funds unit targets school funds and other clients.

Perella, Credit Suisse

Perella Weinberg Partners, based in New York, hired Christopher Bittman, former investment chief of the University of Colorado Foundation, in July to lead a unit that manages money for endowments. David Russ, a former manager of Dartmouth College’s fund, was hired in June at Zurich-based Credit Suisse Group AG as a chief investment strategist in asset management.

Endowments have seen turnover in their management ranks. Dartmouth, in Hanover, New Hampshire, Brandeis University in Waltham, Massachusetts, and New York University in Manhattan didn’t immediately fill chief investment officer positions as they reviewed spending.

James Walsh of Cornell University in Ithaca, New York, announced plans in February to step down at the end of the academic year. He said this month that he plans to start a $150 million hedge fund in London, investing in easy-to-sell securities such as stocks and bonds around the world.

TIAA-CREF comprises Teachers Insurance and Annuity Association of America, a life insurance company whose profits in part are distributed to policyholders, and College Retirement Equities Fund, a nonprofit corporation. Congress ended both organizations’ tax-exempt status in 1998.

To contact the reporter on this story: Gillian Wee in New York at gwee3@bloomberg.net.

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