A Rare Look Into a CIO’s Pay Structure
University of Michigan’s endowment was forced to release its full investment team’s compensation plan, showing that the CIO’s bonus depends in part on beating his peers.
A Freedom of Information Act request — and subsequent lawsuit — filed by the Detroit Free Press has resulted in a rare look at the pay structure at one of the country’s top public endowment offices.
The University of Michigan’s 26-page “Investment Office Incentive Plan” was published by the newspaper Friday, May 5, after a state judge ordered its release.
According to the document, 25 percent of chief investment officer L. Erik Lundberg’s bonus pay package was based on the fund’s performance relative to that of about 100 other colleges and universities, over a rolling three year period, as per Cambridge Associates data’s. This practice is controversial, as one fund’s performance doesn’t affect another’s, and organizations can have vastly different needs and risk tolerances.
[II Deep Dive: The Elite CIO You Don’t Know]
In addition to information on how the chief investment officer is compensated, reporting by the Detroit Free Press revealed that the university had set up a CIO Endowment Fund, which was used by top alumni donors to donate money specifically to defray the cost of paying Lundberg.
“The endowment established to honor the chief investment officer does not benefit the CIO directly,” according to a webpage published on May 4 by the university seeking to clarify certain facts initially reported by the Detroit Free Press.
However, this practice has ended based on a March blog post from the University of Michigan’s public affairs office. “The Board of Regents recommended the change to avoid any perceptions of conflict,” a spokesperson for the university told Institutional Investor by email.
According to NACUBO (the National Association of College and University Business Officers), the University of Michigan has the ninth largest endowment in the United States.
The university’s endowment funds were valued at $10.9 billion as of June 30, 2017, the institution’s website shows. The long-term fund returned 13.8 percent for the fiscal year, as compared to its benchmark, which returned 10.3 percent during the same time period.
At this point, it’s unclear whether the state judge’s decision to release the documents demanded by the Detroit Free Press will set precedence for other public university endowments. If that is the case, endowments may have to become more transparent, when asked, about how they’re paying investment officers.
In addition to ruling for the release of the documents, the judge reportedly mandated that the university also reimburse the newspaper for its legal costs.