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

Published online by Cambridge University Press:  01 March 2024

Matteo Binfarè Open the ORCID record for Matteo Binfarè [Opens in a new window]  and
Robert S. Harris
Matteo Binfarè*
Affiliation:
University of Missouri Robert J. Trulaske Sr. College of Business
Robert S. Harris
Affiliation:
University of Virginia Darden School of Business harrisr@darden.virginia.edu
*
mbinfare@missouri.edu (corresponding author)
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Abstract

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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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 35
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2024. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank Brad Barber, Hendrik Bessembinder (the editor), Justin Birru, Greg Brown, Yong Chen, Nathan Dong, Jonathan Fluharty, Thomas Gilbert, Juan-Pedro Gómez, Amit Goyal, Jillian Grennan, Fotis Grigoris, Umit Gurun, Victoria Ivashina, Steven Kaplan, Aymen Karoui, Josh Lerner, Francis Longstaff, Stefano Pegoraro, Philipp Schnabl, Stephan Siegel, Yuehua Tang (the referee), Jay Wang, and conference participants at the 2022 Eastern Finance Association, the 33rd Australasian Finance and Banking Conference (AFBC), the 2020 Financial Management Association, the 2020 Southern Finance Association, and Korea University Business School for helpful comments and suggestions. Du Nguyen and Kyle Zimmerschied provided excellent research assistance. A previous version of the article circulated under the title “What Drives Pay for Chief Investment Officers At Endowments?” All errors are our own.

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