Page 1 of 4

It was an unusual sight. On a Thursday morning, August 22, 2013, the investment officers of the University of Notre Dame endowment filed into a tiny log chapel on campus for a special prayer service. This was not the annual back-to-school Mass that occurs after the students return. Instead, Notre Dame’s chief investment officer, Scott Malpass, had chosen the oldest, most intimate chapel on campus — 57 are scattered across Notre Dame’s bucolic 1,200 acres — to celebrate a more personal milestone. “It was my 25th anniversary, and I wanted to do it there,” says Malpass, 51, who became CIO in August 1988, just after his 26th birthday.

The Log Chapel was a fitting site for the anniversary Mass, embodying both the founding of the university and its deep ties to Catholic mission tradition. Built in 1831 by Father Stephen Badin, a French missionary to Native Americans and the first Catholic priest to be ordained in the U.S., it was taken over in 1842 by Father Edward Sorin, the Congregation of Holy Cross priest who had come to South Bend, Indiana, to found a Catholic college. (The original cabin later burned to the ground and was rebuilt in 1906.) Badin and three successor missionary priests are buried under the chapel’s middle aisle.

Malpass was surrounded by some of his closest friends and colleagues. Notre Dame’s current president, Father John Jenkins, a 1976 graduate of the university, officiated at the Mass while Nicholas Chambers, an associate in the investment office’s public capital group, who had once trained in a boys’ choir in Houston, sang and operations associate Breighton Brown played the violin. Timothy Dolezal, an investment director on the private capital team and valedictorian of the Notre Dame class of 2002, acted as altar server.

At the request of Michael Donovan — Malpass’s deputy CIO, former roommate and fellow 1984 grad — Jenkins called the congregants to the altar during a reading of the Prayers of the Faithful. As Jenkins placed his hands on Malpass’s head, the team from the investment office surrounded him, joining in a prayer of thanks for his stewardship of the endowment. “It was a reflection of the affection people have for him and a sense of their common mission,” Jenkins says.

Malpass and Notre Dame have much to be thankful for. Over the past 25 years, the CIO has built an investment machine that has taken Notre Dame’s endowment from the 23rd largest in the U.S. to 12th — and made it tops among American Catholic universities. That growing endowment has helped transform the school into a top-rated research university. Some believe Malpass’s influence rivals that of the beloved Fighting Irish football team.

What Malpass has accomplished goes beyond recruiting and retaining a talented team, building a diversified portfolio and accessing top asset managers — the usual tasks of a university CIO. The legacy transcends his impressive longevity in office, a tenure rivaled only by Yale University CIO David Swensen. “We think we’re doing something special here,” Malpass says. “It’s in some ways a mystery and in some ways a miracle.”

It’s no mystery that Malpass has dedicated virtually his entire adult life to a single passion: his alma mater. That task has led Malpass to redefine the role of CIO well beyond the normal job description of asset management. His mission includes a devotion to his religious beliefs and to Notre Dame’s place in fostering a Catholic worldview. It encompasses his participation in education, a unique staff recruitment and development philosophy and a quest for investment excellence that has taken the university into new territory.

Malpass, who has never married, has created a tight Notre Dame–centric family that includes the investment office of professionals, nearly all alumni themselves; a coterie of students and alumni who look to him for knowledge, inspiration and mentoring; and a network of Wall Street–based trustees. Add to this a belief in consistency, stability and long time horizons that he applies to his staff, investment committee members, asset managers, investments and, not least, himself.

“You hear about the Harvard model and the Yale model,” says Malpass. “We’ve developed the Notre Dame model.”

Malpass’s “miracle” is built on hard numbers and hard work. In the quarter century since he became CIO, the portfolio has grown at an annualized trailing rate of 11.9 percent, compared with 9 percent for the median large fund in Wilshire’s Trust Universe Comparison Service. That performance has taken the fund from $453 million in 1988 to today’s $8.4 billion. In the same period the school's annual expenditures rose from 11 percent of the endowment to 25 percent and the total spend grew from $24 million to $286 million.

Jenkins, who has led Notre Dame since 2005, insists that financial aid is the critical factor in the university’s quarter century of growth. Since 1987 some 300 endowed professorships have been added; total annual student-aid packages have risen from $5 million in 1988 to $113 million today for a student body of 11,700 or so. Perhaps more significantly, Notre Dame’s median Scholastic Aptitude Test score has grown from 1,280 to 1,440.

John (Jack) Brennan recalls his first meeting with Malpass, while on a campus tour with his son in 2002. Brennan, chairman of Vanguard Group from 1996 to 2009, was a Dartmouth College graduate and trustee who knew little about Notre Dame. Rather than talking shop as one asset manager to another, Brennan says, Malpass, “without blinking an eye,” plunged into the topic of student financial aid. “He said, ‘A kid who might have wanted to go to Notre Dame 15 years ago now can because the endowment has grown ten times.’” Brennan, now Vanguard’s chairman emeritus, joined the Notre Dame board of trustees and investment committee in 2009; he is now vice chairman of the committee. His son graduated from Notre Dame in 2006, followed by two younger siblings.

“We’ve developed a brand as an investor,” says Malpass, noting his relationship with 178 asset managers and his distinctive long-term focus. “They use the term ‘partners’ for investment managers,” Brennan says, adding that the partners concept “is an unbelievably powerful force.”

These are not speculative investments. Today a full 45 percent of the Notre Dame portfolio is invested in private equity, real estate and other funds with ten-year lockups, and an additional 25 percent is in hedge funds with lockups that range from one to five years. But “long term” does not imply passivity. Peter Johnson, a linebacker on Notre Dame’s 1977 national championship team, went on to become director of institutional sales for San Diego–based Nicholas-Applegate Capital Management and sold Malpass one of his first investments in the late 1980s. But in 2000, Malpass terminated the then-$500 million mandate when Allianz acquired Nicholas-Applegate. “I tried everything to keep it,” says the now-retired Johnson, who still golfs with Malpass. “It ended up being a good decision for Notre Dame because Nicholas-Applegate struggled at Allianz.”

Over 25 years Malpass has hired 290 firms and terminated 180 of them.

Malpass’s tough love has proved profitable for Notre Dame. The venture capital portfolio, for example, has realized an annualized 30 percent internal rate of return since its 1980 inception. Michael Moritz, a partner at venture firm Sequoia Capital in Menlo Park, California, has been along from the start. “It says a lot about Notre Dame and Scott Malpass that we still have the relationship with the same individual today,” Moritz says. “It’s difficult in the universe of people in our lives at Sequoia to come up with even one or two names that fall into the same category as Scott.”

Moritz calls the CIO’s investment record “one of the astonishing achievements in the universe of investments. You could easily say, without hyperbole, that Scott is without doubt the Warren Buffett of the endowment universe.”

“All the endowment folks say, ‘We’re long-term investors,’” notes Donald Fehrs, a former Notre Dame senior investment officer and Cornell University CIO, and current principal at Evanston Capital Management. “But it’s one thing to say it, and it’s quite another thing to actually do it. To actually do it, you have to have a vision that you’re committed to one institution your entire life.” Most people start out committed, Fehrs adds, but something comes along to change that. “For Scott, everything lined up.”

“Anyone with his skill and ability to create a team, it’s highly unusual he would stay in one place,” says James (Jimmy) Dunne III, co-founder of New York investment bank Sandler O’Neill + Partners and a 1978 Notre Dame alum, trustee and investment committee member. “It has had an exponential effect on donors.” But, Dunne cautions, “the challenges are still there. We have as many challenges today as we had 25 years ago — maybe more.”

An avid golfer with an 11 handicap, Malpass likes to tell stories about his early years in Augusta, Georgia, home of that golfing shrine Augusta National and its Masters tournament. His father, Charles, one of 12 children, was a lieutenant at nearby Fort Gordon when Scott was born, in July 1962. His mother, Judy, a nurse, grew up in Erie, Pennsylvania, where the family eventually settled and where his father became head of materials management at a branch of Johnson Controls.

Single Page    1 | 2 | 3 | 4