University Looks at Alternatives for Replacing Kannam

, by Jeremy Keim-Shenk, Staff Writer

After Thomas Kannam left his positions as Chief Investment Officer (CIO) and Vice President of Investments on October 13, the University originally planned to replace his vacancy within a few weeks, according to President Michael Roth. Now administrative sources say that the process will likely take a few months.

“We are reviewing our options at this point,” wrote Vice President for Finance and Administration John Meerts in an e-mail to The Argus. “We hope to have definitive answers by the Board meeting in February.”

The University is considering multiple options for managing Kannam’s responsibilities in the future.

“One [possibility] would just be replacing the position as a Chief Investment Officer, although it won’t be exactly the same,” Roth said. “Some places use outside organizations instead of hiring someone internally. We’re going to look at those possibilities.”

Such a decision would not be a budget-cutting move, since CIO compensation is a function of the endowment’s performance. Such endowment-related expenses are not included in the operating budget.

“It’s the price you pay for your investments,” Roth said, referring to CIO compensation or the cost of paying for services from an outside organization.

Moving ahead, the University will continue to maintain the investment projects and strategies developed by Kannam and the Portfolio Subcommittee.

According to Meerts, Kannam’s role in providing advice regarding University investments has been temporarily assumed by the Finance Department.

“[Kannam’s departure] should have no effect on our investments,” Roth said.

  • David Lott, ’65

    “[Kannam’s departure] should have no effect on our investments,” Roth said.

    The corollary would seem to be that Mr. Kannen’s presence had no effect on investments either.

    What a strange statement by President Roth.

  • Anon

    Why did he leave? Why so secretive with the reason?

  • David Lott, ’65

    It’s no secret. When people like him leave without another gig in hand, it’s because of either poor performance or a poor relationship with the trustees. Or both. No announcement is needed to discern this.

    The ultimate responsibility here is with the board. They must have thought he was going in the wrong direction. Or it may have been clear. We will find out when Wesleyan finally releases its year end financial report for the previous year, usually out in October.

  • rwohl

    yo lott, he left for another job. i wanna say at pitt. definitely a bigger school. sorry that wasn’t in the article

    – the eic

  • David Lott, ’65

    Why wasn’t it in the article, eic? That’s a pretty important fact. How about a follow up report?

  • David Lott, ’65

    I googled Kannam and Pitt and found no hits.

    The Argus has an important story here and is paying little attention to it other than passing on administration press releases.

  • David Lott, ’65

    Assuming for a moment that the rwohl above is in fact the editor in chief of The Argus, I have a few questions.

    Have you tried to interview Mr. Kannam or any of the other staff related to his job about his departure?

    Have you attempted to review Wesleyan’s performance during his tenure other than to accept the generalizations from University PR?

    Have you inquired why the University’s annual financial report has been delayed this year from its normal publication date?

    Are you aware of the large obligations the University has to fund capital calls on private equity investments and have you inquired about what the University is doing to relieve itself of that obligation? (In last year’s financial report this was stated as an objective.)

    Are you even aware that the University issues an annual financial report, and are you preparing to do an article on it when it comes out?

    Have you done any investigation into Trustee governance of the investment function?

    “yo lott, he left for another job. i wanna say pitt.” Is this your idea of reporting?

    This is a huge issue for Wesleyan. The school is in a very weak competitive position with its peers (and schools it would not consider peers) because of bad spending habits and poor endowment performance over a very long time.

    There isn’t much that is more important to Wesleyan’s future, and if you guys do not investigate it, no one else is likely to anytime soon.

    It’s quite an opportunity if anyone wants to do the work.

  • ’07 alum

    Since when have we had a CIO/VP for investments? First time I’ve heard of this position!

    – ’07 alum

  • David Lott, ’65

    He was at Wesleyan for 10 years or so. His job was more or less the same for quite a time but the title and job description improved. Profiled in the Alumni mag in a glowing article a year or two ago.

    I don’t mean to be too hard on Kannam personally. The Trustees are the ones ultimately in charge here. But there are a lot of questions that need to be asked and answered.

  • Bradley Spahn’11

    David,

    I’ve noted your keen interest in the university’s financial position, and appreciate your long-standing interest for Wesleyan’s financial health. I find it deeply heartening that after so many years, your concern for Alma Mater continues to run deep. Recognizing that your intentions are in no way malicious, I do find the content of many of your comments to be troubling and counter-productive.

    You’ve called in the past for deep cuts to the university’s spending to encourage endowment growth and a more positive financial outlook in the long-term, but you never really grapple with the near-term implications of your proposal. I agree that Wesleyan needs to be financially sustainable across all time-horizons, but the sorts of measures that would achieve the results you propose would do serious harm to Wesleyan’s academics.

    As for the present issue with Tom Kannam, I don’t know the circumstances of his leaving, but I am sure that in the short term Nate Peters and John Meerts, with the help of the investment office, are able to handle Kannam’s responsibilities. Like most institutional investments, Wesleyan’s portfolio is relatively unreliant on day-to-day investment decisions at the CIO level, so I think you’re overestimating the damage not having someone full-time in that position might cause.

    Of course, in the long-term this isn’t a sustainable model as John Meerts and Nate Peters had an unenviable portfolio before Kannam left, and this just adds to their already full workloads. As such, the University should be able to get by for a few months without a permanent CIO before a new one is named without long-term consequences.

    As for trustee governance, there is a Portfolio subcommittee of the Finance committee of the BoT. The subcommittee is a place for board members who work in finance to discuss the specifics of our endowment with the investment office. While I haven’t followed the specifics of the committee’s business, I can tell you that they meet 4 times a year and have contributed to above average endowment performance during Kannam’s tenure.

    Again, I don’t know why Tom left, or even if he chose to leave or was dismissed, but I find your speculation about his departure’s relationship to endowment performance to be premature.

    In defense of the Argus, there was a note on a previous blog post that both Kannam and the administration declined to comment further. Also, I doubt rwohl was actually Rob Wohl, but you could email him at rwohl (at) wesleyan.edu if you wanted to know for sure.

    As you are keenly concerned with the financial report, you should note that the report is audited by an accounting firm (KPMG the last few years.) I think you’re discounting the possibility that it may be delay on the accounting side that is responsible for the later than normal annual report. Though of course, it’s only about a week later than normal, so I again find your concern to be premature.

    Finally, I’ll say that throughout this crisis President Roth has been very open in releasing endowment figures and speaking frankly about the university’s financial health. It’s also worth remembering that it’s really he who is calling the shots here, and that the Board of Trustees serves primarily as advisors. I’m confident that any cabinet-level staffing decisions are ultimately his alone, though he may take advice from Board members and others.

    Again, despite our disagreements, I think it’s great that your comments have sparked discussion in this venue and elsewhere. It really means alot to me as a current student to see alums take an active role in these ongoing debates.

    -Bradley Spahn ’11

  • David Lott, ’65

    “You’ve called in the past for deep cuts to the university’s spending to encourage endowment growth and a more positive financial outlook in the long-term.”

    Mr. Spahn, thank you for your thoughtful and serious letter, but you must have me confused with someone else on this issue.

    Frankly, it’s hard for me to evaluate where Wesleyan could cut from where I sit, but I have enough experience with organizations of various types to know that most can cut quite a bit without a serious loss of quality of their central mission. It is not clear to me why Wesleyan should be an exception to this rule.

    Many of Wesleyan’s financial problems were created in the 1970’s and 80’s, when spending was poorly controlled and investment and fund raising performance below the norm. But until recently Wesleyan was taking an unsustainable percentage of endowment each year to fund operating costs. There is also much more enthusiasm for creating programs than stomach for terminating them.

    On the investment side, a lot of the endowment results are dependent on the valuation of illiquid investments. It has always seemed to me that Wesleyan is far less well positioned than (say) Harvard or Yale in getting the cream of those opportunities. In down markets we learn the truth. (As the Great Buffet says, “when the tide goes out you know who has been swimming naked.”) I hope Wesleyan will not prove to be one of the nudies but the school has taken a lot of risk in this area. One or two disaster years can prove the good results of the past decade illusory.

    I do not assert that Roth or the administration are hiding the truth. Roth seems to be a first class individual in all respects. (I recently defended his pay in another post.) But I am concerned about the delay in the financial statement. In my experience that often means the institution is grappling with a quite unpleasant situation. I hope you are correct that my concern is premature.

    I have never seen figures that support the conclusion that under Kannam and the current board Wesleyan’s endowment has outperformed. Williams annually publishes a chart that shows endowment performance over a 20+ year period. (They should, as they have a good story to tell.) I am not aware that Wesleyan has done anything like this. It should, no matter how painful it might be to look at.

    When I was an undergraduate, Wesleyan was neck and neck with Cal Tech for the highest per capita endowment in the country. I recall the endowment to have been about $150 million then but can not find data to confirm my recollection. Assuming my recollection is roughly correct, that means that as of last year endowment had increased only about three times in nearly 5o years.

    That is a sad outcome for the school and if the mistakes that lead to that outcome are repeated, the school will be destroyed.

    I read the Argus to keep in touch with the school. I consider Alumni Magazines to be equivalent to Pravda under the Soviets. (Apologies to my brother, who edited the Swarthmore alumni mag for many years and used to clue me in on his battles with the school administration on content.)

    The Argus is a disappointment. I hope it does not mirror today’s Wesleyan. But your letter gives me hope.

  • Bradley Spahn’11

    David,

    First I want to apologize for mischaracterizing your views, I just did a little searching, and I think I got you confused with one of the commenters on Roth’s 2020 post. It seems that comment should have been directed to someone named Peter.

    I agree with most of what you say here, but will withhold judgment on the alumni magazine for fear of University Relations spiking my drink.

    I’ve never done any serious looking-into the history of Wesleyan’s financial position, but I will say that your analysis matches with everything else I’ve heard from other serious members of the Wesleyan community. It’s quite unfortunate that Wesleyan ceded its financial position to other schools, but I do have every indication that we’re on the right path.

    The only point that I’d differ with you on is the university’s endowment performance. I’m not an authority on institutional investing, nor will I ever be one, but my understanding is that our endowment has regularly performed in the top half of institutional investments and frequently in the top quartile.

    I asked Tom Kannam about this last year and he pointed me to a Moody’s report citing the Wilshire Trust Universe Comparison Service. But of course, there are questions there about portfolio size and risk management that would need to be considered for a robust comparison to be made.

    That measure as well as Wesleyan having avoided a serious liquidity problem leads me to believe that Wesleyan’s portfolio is reasonably well managed now, thought it might not measure up to some of the larger endowments you point to.

    In the longer term, and in response to your point about the endowment having tripled in 150 years, I’d say that this is indeed unfortunate and disappointing growth, but that for a true accounting to be made, you must also consider capital improvements made to Wesleyan’s campus in that time including (and please correct me if I’m misdating these): the Usdan Center, Zelnick Pavilion, twice-renovation of Scott Labs, Exley Science Center, Hall-Atwater laboratories, Butterfield Dormitories, Center for the Arts, and Center for Film Studies. In hindsight it seems clear that some of these weren’t necessary, or as is the case of Hall-Atwater, poorly built, but it is important to keep these in mind when making such comparisons.

    Like you, I wish Wesleyan had been more conservative in its spending between your time at Wesleyan and mine, but I am mindful of what that money has done between now and then.

    Do drop me a line if you’re coming back to campus for #45.

  • Ron Medley, `73

    “tripled in 150 years”? That would indeed be pretty poor performance, assuming Wesleyan’s endowment was $150,000,000 in 1860.

    Okay, that was a typo. David meant 50 years ago. Fifty years ago would be, 1960. Since that would have preceded the sale of AEP to Xerox by several years, it would be hard to put a precise market value on Wesleyan’s endowment at the time. My hunch is that alot of it was invested in bonds and that the income from it _per se_ would have been fairly minor compared to the income stream from an ongoing and highly successful business venture like AEP.

    If people really want to play the blame game (and, it’s not entirely clear to me what the point of that ever is) why not start with the sale of AEP? From all reports, it was making money hand over fist. Its sale to Xerox basically replaced a “real asset” with a bundle of highly liquid, market-valued assets; and, Wesleyan’s fortunes have pretty much been strapped to the ups and downs of the equities markets ever since.

    At some point, probably during President Campbell’s administration, Wesleyan figured out how to live within the limits of that much more volatile financial structure. First, it very deliberately became much more dependent on tuition (students being the ultimate “real asset”.) This had the entirely predictable consequence of decreasing the endowment per student ratio, something I suspect was not nearly the fetish in 1973 that it would later become.

    Secondly, it has experimented with different formulas for taking the “total return” from investment capital gains and the interest earned therefrom and applying them to current operations, always with an eye toward retaining some of that gain for future investment. It would seem to me that, under that formulation, if the endowment did nothing more than keep pace with inflation, it’s performed admirably. And, my understanding is that prior to this latest panic in the credit markets, the endowment had done precisely that.

    We can argue (and, apparently do) whether merely keeping pace with inflation is a worthy enough goal. After all, Wesleyan was an early adaptor of inter-collegiate sports competition and there’s every temptation to view endowment performance as a similar index of school pride. I’m all for that; it’s fun; it’s instructive on many levels. But, if you’re going to do that, why stop there? Why not also compare alumni giving and frequency of capital campaigns over the past 50 years?

  • Anonymous
  • Friends for Tom’s Release

    Why not hire Ralph Gill as his replacement?

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