Endowment chief sees scope to partner with investment advisors
Third-party investment experts have the potential to help India's endowment industry handle portfolio allocation and strategies more effectively by encouraging new viewpoints, a senior executive said.
“There is a lot of merit in having external advisors, who bring in different perspectives,” Kaviraj Nair, CEO of the Office of Institutional Advancement, at the Indian Institute of Technology Madras (IITM), told AsianInvestor.
The office has oversight of the technology-focused university's nascent endowment fund.
Most academic institutions in India have a conservative approach in their investment strategies, partly because endowment funds are a new concept in the country and universities are only cautiously exploring the model.
One way to introduce different approaches and ideas to investing is to bring in professional third parties.
"I think in-house talent is useful but can’t help you enough in breaking that barrier [of being conservative],” he noted.
“One way to change is to bring in experts who have the proven expertise and track record and provide confidence that changes can be made and that this is possible.”
“Data-driven decision making can help here as well, and technology platforms can help with this,” he added, although he acknowledged that all this could take time.
The prestigious IIT-M is known both nationally and internationally for excellence in technical education. It is one of India’s top engineering universities.
GROWTH SPURT
The past few years have seen endowment funds being created by some top-ranked technology and management institutes in India as they seek to become more self-sufficient with finances and reduce reliance on goverment funding.
A few, such as Indian Institute of Technology Delhi, have expressed goals of creating multi-million dollar endowments.
IITM also nurses high ambitions for its endowment, which was established in 2016.
“Aspirationally, we would like to have an endowment fund of around a billion dollars,” said Nair, who is based in Chennai, formerly Madras. “Our objective is to double the size of our endowment every three to four years.”
Efforts are already underway to create a $1 billion fund by the end of 2027, according to the university's latest strategic six-year plan, which is more aggressive than its previous plan. It was last reported to have accumulated about $100 million.
CONSERVATIVE COURSE
IITM has a qualified team of professional investment advisers to help with managing its gradually growing portfolio of investments. The portfolio is still very conservative, said Nair.
“We follow a formal process for investing, which includes an investment committee comprising experts from IIT-M, eminent alumni and some external experts. They make investment decisions along with the registrar’s office,” he said.
Nair said that over time, there is the possibility that it could expand its team of external investment advisors.
As with other budding Indian endowment funds that AsianInvestor has spoken to, IIT-M’s fund assets are primarily invested in state and central government securities comprising debt instruments and some equity investments, mostly mutual funds.
Nair does not expect to see any massive changes to endowment funds’ asset allocation strategies over the next few years.
“Perhaps, over the next 10 years, that could change,” he noted.
Other endowment fund executives that AsianInvestor has previously spoken to have said most entities are currently in the fundraising phase and are very new.
Once they have relatively sizeable funds, the focus will shift to money management.
MORE RISK AVERSE
When they do accumulate sufficient funds, it’s unlikely they will adopt the renowned Yale or Stanford models of investing very quickly.
“I think the path Indian university endowments will take will be more conservative [compared to US counterparts],” said Nair.
“The Indian psyche is much more risk-averse and we are still in a ‘protect the capital’ stage. We are comfortable with moderate returns on investments.”
US university endowments are among the biggest in the world, with Yale, Harvard, Stanford and the likes boasting multi-billion-dollar funds. Many of their CIOs are highly regarded for their investing acumen.
David Swensen, for instance, is one of the best-known names in endowments -– he used to be the CIO of Yale University’s endowment fund – one of the largest in the world – until he died in 2021.
His model of investing eventually came to be known as the Yale model of investing.
The model requires investing the portfolio in five to six different classes and leaning towards growth assets such as equities.
DATA-DRIVEN
Today, many endowments are providers of long-term capital even to alternative assets like private equity and venture capital.
It will take a while for that attitude to be adopted by Indian endowments, notwithstanding requiring changes in the regulatory environment as well.
“For that attitude to evolve, we need to get more data and better forecasting and scenario models that show we can predict outcomes accurately,” said Nair.
“That can give Indian endowments more confidence.”
“In the long run, data-driven decision making and the availability of quality data, especially long-range historical data, will help investment teams run through various scenario analyses and create better testing models and better predictions.
"That will gradually help eliminate the fear of the unknown,” Nair added.