BlackRock Inc., the world’s biggest money manager, is making headway in investing for U.S. college endowments.

BlackRock will manage Arizona State University Foundation’s $600 million endowment, succeeding Perella Weinberg Partners’ Agility unit. The transition starts July 1, the foundation and BlackRock said.

New York-based BlackRock has $5.4 trillion in assets including $110 billion in globally outsourced investment management for pensions, insurance companies and other institutions. Yet it hasn’t been a big player in the increasingly competitive business of managing the investment offices of endowments and foundations.

‘Overhauling Enterprise’

“It was not an area that we’d dedicated significant resources to,” Mark McCombe, head of the Americas region and global head of BlackRock Alternative Investors, said in an interview on Friday. “We’ve been completely overhauling our enterprise.”

Since January 2016, BlackRock has been awarded more than a dozen outsourced investment mandates in North America totaling about $5.8 billion in assets, the firm said.

The company has provided risk advisory services to the Arizona State foundation for the past three years. “We’ve been building a progressively strong partnership with the university,” McCombe said.

Passive Investing

Arizona State is switching its money manager as it explores a wider array of strategies, including shifting more of its portfolio to passive investments, said Rick Shangraw, the foundation’s chief executive officer. Agility had run the endowment for the past three years. BlackRock is a leading provider of low-cost exchange-traded funds.

“It’s clear when you look at endowments and foundations over the last few years that performance has not been where we want it to be,” Shangraw said. “We’ve been exploring every alternative to see how we can be more creative.”

U.S. endowments and foundations have embraced passive strategies as they sour on active managers like hedge funds and struggle to meet performance targets. The average annual return at universities over the past decade is 5 percent, about what is spent from their endowments each year to support school operations, according to an industry study.

‘Soul Searching’

“Right now there’s a ton of soul searching going on around investment committees on their returns and the optimal approach to take,” said Kevin Quirk, a principal at Casey Quirk by Deloitte, a management consultant to fund companies.

Arizona State’s foundation, which was established in 1955, lost 4.4 percent in the year through June 30, 2016, and trailed a benchmark in the past three years with an annual average return of 3.7 percent, according to an annual report. Endowments typically target an annual gain of about 8 percent to cover spending and inflation.

Agility has about $8.4 billion in assets, and its clients include the University of Colorado and Rockefeller Brothers Fund. Arizona State hired Agility to select asset managers to invest the university’s money.

The firm didn’t bid to keep Arizona State, seeking instead to end the relationship late last year after new members of the foundation’s investment committee wanted a greater say in portfolio selection, according to a person familiar with the matter.

Shangraw said the decision was mutual. “Both sides decided it was prudent to make the change,” he said.

Source:
courtesy of BLOOMBERG

by Michael Mcdonald

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