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Our Take: A Hero For Our Time

America needs more people like Robert Rowling.

Rowling is a Texas businessman who until recently served on the University of Texas Board of Regents and as volunteer board chairman of a state-controlled company that manages the university's endowment funds. Earlier this month, he resigned during a state Senate hearing at which the investment firm's chief executive was blasted for accepting a $1.05 million bonus and Rowling himself drew criticism for approving that payment.

The incident should be a wake-up call for any investment professional who considers the non-profit sector a safe haven. Given the broad public's antagonism toward anyone and anything connected with finance, in-house investment managers of university endowments, teachers' retirement systems and other public and quasi-public investment funds could soon face similar attacks on compensation and fee structures. The instigators seem to believe that anyone managing public funds should be compensated on the scale of a civil servant - and anyone who isn't is fair game for mudslinging, no matter what they did to earn an above-average paycheck.

Speaking Truth to Power

In Texas, Rowling refused to bow to his state's lawmakers. Instead, he spoke truth to power.

"We have nothing to apologize for, in my opinion," Rowling told the Associated Press in reference to $3.38 million in performance bonuses his board had approved for employees of University of Texas Investment Management Co. (UTIMCO). For politicians, he said, the act of awarding or accepting a bonus is "a popular, easy target to beat people over the head with."

In his resignation letter to Texas Gov. Rick Perry - who had also criticized the UTIMCO bonuses - Rowling wrote: "You have characterized the (bonus) payments as 'irresponsible' and 'hardly defensible.' I completely disagree. It would be irresponsible and shameful to commit to an agreement with employees and then turn your back on the agreement...."

And he said senators' treatment of UTIMCO CEO Bruce Zimmerman during the Feb. 5 hearing "truly does meet the definition of 'shameful.' In the current environment, I do not know why any rational person would volunteer their time to serve" on the board, Rowling's letter said.

The incentive payments were awarded to UTIMCO's in-house portfolio managers and researchers last November for their funds' performance during the fiscal year ended June 30, 2008.

Obfuscation and Bullying

State Sen. Roger Ogden has said University of Texas methods for setting fund managers' bonuses are "under the radar" and need to be "surfaced." However, our contributor Dona DeZube says it took her all of 10 minutes to locate a publicly available version of UTIMCO's detailed incentive plan document, prepared by Mercer Human Resource Consulting.

I've read that 24-page document and it appears unremarkable - probably typical of the incentives in place at most other in-house endowment management firms. Performance goals are based on overall returns of the fund relative to benchmarks and a peer group, plus returns for each staff member's asset class compared with specified indices.

Rowling told AP that when state senators grilled Zimmerman, "They were almost speaking to him like he was accused of a crime or something, like he'd done something unethical or illegal."

Nothing in the voluminous local press coverage suggests Zimmerman or other UTIMCO employees deviated from mandates, fell short of goals, or did anything improper. Instead, what we have here is a bunch of politicians - at least one of whom (Gov. Perry) faces a tough primary challenge within his own party in 2010 - trying to score points by bullying employees who have done a fine job managing the university's funds. No one has challenged Rowling's statement that those funds outperformed more than 75 percent of comparable endowments and pension funds nationally during the period for which the bonuses were awarded.

Rowling's principled resignation won't entail a sacrifice of income or career prospects. The university board seats are unpaid and he is financially independent, so he wouldn't have taken those civic posts as a steppingstone to some future role. Still, he is a hero in my book for sticking up for his team and standing up to the demagogues. Many in similar positions will be called to take courageous stands in the months ahead, around the nation and around the world.

AUTHORJon Jacobs Insider Comment
  • Ma
    Mark Feffer
    27 February 2009

    Actually, the article does mention the funds' performance:

    "No one has challenged Rowling's statement that those funds outperformed more than 75 percent of comparable endowments and pension funds nationally during the period for which the bonuses were awarded."

    -Mark Feffer

  • ji
    27 February 2009

    The article does not cover the true issue here: What was the performance that was being rewarded? Too many investment people have been richly rewarded for poor performance. How well did these guys do?

  • ss
    27 February 2009

    Robert Rowling is the way to go. Make no mistake. Groundnuts will get you monkeys , not experts!
    Notwithstanding erudite research studies abt disparities , breasbeating of equity by demogogues and ''outcry" from the general public, the fact remains that performance comes through payment.

  • AV
    A VC and hedge fund manager
    21 February 2009

    Well, it's true that it's a very difficult time and that board members probably should not volunteer-certainly should not be expected to, but the gap is fairly large between free and the numbers mentioned. I'll match my skills and history with theirs, and do it for less, for example. That's supply and demand economics, but truth is that protectionism is healthy in the industry. One cannot escape for long the inevitable question- nor should they- what value are you providing in relation to my own? And what portion of the economy is finance skimming off the top relative to true value created? Those are the questions responsible IBs have asked of others for decades.

    Sorry folks, but the vast majority in this business have been living off of fees and the revolving door- relying more on relationships than value add. The skills and knowledge are in fact considerably less than many areas in the economy with much less compensation. Welcome to the reality of a two way market economy..... Hope you enjoyed the ride while you could.

  • Jo
    Jon Jacobs
    20 February 2009

    Norman, you make an interesting point. It's supported by the work of NYU-Stern's Thomas Philippon on historical pay disparities between finance and other professions, which we've quoted from time to time. Based on 100 years' worth of data, Philippon finds that bankers today are indeed overpaid and that the gap will be forced down over the long term, much as you described. But I think you overlook something else: the implacable economic logic that dictates paying money managers in proportion to the value (returns) they create. Hedge funds set the standard for other fund managers' compensation, and look to remain so. True, sinking markets are pressuring hedge funds' fees (and therefore compensation of individual fund managers), too. But everything's relative - if the "2 and 20" fee formula goes to "1 and 10", hedgies will still earn tons of money. So if any college or pension fund wants to manage assets in-house, they must compete for talent with hedge funds. That means continuing to give PMs and analysts a stake in the returns - just as U.Texas (and everywhere else) does. (Or, they'll have to accept inferior talent, and inferior returns, going forward.) - Jon Jacobs, eFC News staff

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