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

Matteo Binfarè and Robert S. Harris

Journal of Financial and Quantitative Analysis, 2025, vol. 60, issue 3, 1111-1145

Abstract: 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.

Date: 2025
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