By Charles Skorina
My friend Sam Gallo has just finished the two-year executive MBA program at the University of Chicago (Chicago Booth School of Business). He graduates this month with a stellar academic record after commuting every other weekend for two years from D.C. to Chicago while running the Maryland endowment and keeping a family happy and intact. No small accomplishment!
Students in Chicago’s exec program get exactly the same professors and curriculum as the full-time cohort.
Along with their twice-a-month weekend commute, the exec students spend three full weeks at the Chicago campus, one week at the London campus and one week at the Hong Kong campus. It’s a tough grind for students with demanding full-time jobs.
In Sam’s case the day job is running a $1 billion endowment for the 21 schools in USM system, including the flagship University of Maryland at College Park.
Skorina: Sam, you’re just about to complete your forth year as CIO. What have you learned, and what changes have you made on your watch?
Gallo: Charles, when you first called me about this position, you said it would probably be the best job I ever had, but that it would take a lot longer to get things done and would be far more complex than anything I had experienced as a hands-on money manager. And that’s been absolutely true. There are just a lot more moving parts when you’re helping to lead a big public institution.
Skorina: Can you give me an example or two?
Gallo: One important change: we tightened up the endowment governance so that investment decisions could be made much more quickly. Sometimes you simply must move rapidly as markets change. Most endowment boards meet only once a quarter and decisions are often deferred.
Now we have a streamlined three-board-person approval process that can operate whenever a decision needs to be made. This really speeds up our ability to take advantage of market changes and opportunities. The full board is notified, of course, and must ratify all decisions; but we can move pretty fast when we need to.
Skorina: How about the portfolio? What’s different now?
Gallo: We’ve done a lot of work on the portfolio. The average endowment makes seven to ten investments a year. Over the last four years we’ve taken about ninety investment actions and the payoff has been substantial.
We’ve tried to quantify the impact of those changes. We back-tested the performance of the portfolio I inherited versus our actual allocations over the past four years. Those legacy holdings would have delivered an annual return of about 5.4 percent, versus the 10.2 we’ve actually achieved.
That’s not to say that my predecessors wouldn’t also have made appropriate adjustments. But an analysis like that gives us some confidence that we’ve made mostly good decisions.
This is not a set-it-and-forget-it investment climate. It’s tough, and we’re not complacent.
Skorina: So, active portfolio management is alive and well at Maryland?
Gallo: It’s just a lot of little wins, Charles; and we’ve had to work hard for every one of them.
Skorina: Sam, most endowment investment offices have small staffs. I think the average size is three to four investment professionals, including the CIO. So how does a CIO generate ideas and keep up with the demands of investing globally?
Gallo: Good question, Charles.
In my case, during the last four years I’ve traveled over 200 thousand miles and my staff and I have met with over a thousand investment managers. Also, we have developed a support network of about 300 informal advisors I can look to for advice and support. And from what I hear from my peers, I’m not leading in the mileage and networking derby!
I have great staffers who have put in long and productive hours. I’m very grateful to them. And I work with a board and foundation management who understand and support what I’m doing.
We’ve gone from a bottom-quartile performer to one that in 2015 outperformed its key internal benchmarks, and then beat its peer universe by 160 bps.
Skorina: Happy four-year anniversary, Sam. And congratulations on finishing your MBA. You’re now a fellow University of Chicago alum and you can expect to receive your first request for a donation any time now.
Any thoughts on the Chicago program or advice for others?
Gallo: It was a lot of work, but worth it.
I met over 200 amazing lifelong friends, learned how to survive on 3-4 hours of sleep a night, eat healthy while on the road. And I lost over 40 pounds!
But best of all, my wife and kids still love me.