University of Cincinnati CIO Karl Scheer was a long-time investor before he took on this role in 2011, including as co-head of investments at Summer Hill Capital Partners, a family office. At Summer Hill, he developed experience working with a wide range of asset classes and managers—experience that has served him well at Cincinnati.

Scheer works with a small team of investment professionals who also had decades of direct investment experience before joining the university. Having a team with a wide variety of experience has been helpful as it works to implement the investment program, especially as he and his peer endowment CIOs focus heavily on private investments, Scheer says.

“I think sometimes people overestimate their ability to run a private strategy,” he says. “We have a ton of in-house experience: We can do some of our own sourcing, we have a strong due-diligence process, and it is still just hard to execute well in these asset classes. When people talk about the ‘endowment model,’ they talk about it like it’s a set of boxes to tick, and it would be great if it was that simple, but it’s not.”

Scheer says one under-discussed source of endowment returns is venture capital. “Venture has been a huge chunk of the returns for many of the most successful endowments, but it’s very hard to forecast when or where those returns are going to come from,” he explains. “If you’re trying to control the size of your allocation and you have something with huge returns for three years in a row, you can end up very over-exposed to a single manager. It takes a lot of work to stay on top of that and manage around it.”

The university’s endowment has grown to approximately $1.3 billion from $800 million over the last three years. Scheer attributes part of that growth to the presence of venture capital in the portfolio.

“Manager selection is critical in every asset class, but especially in venture,” he says. “The top performers tend to be the same handful of funds over and over again, and if you don’t have access to those funds, it takes a lot of work to identify other managers that have similarly consistent returns.”

Scheer adds that there is a tendency to group all endowments together, but there is a significant difference between an endowment of greater than $1 billion and the largest endowments, which have tens of billions of dollars.

“Those guys have the oldest venture capital programs, they write the biggest tickets, they’re in the original masters-of-the-universe funds. Our program is younger; we don’t have the same capacity,” he says. “So when I hear these things about ‘what endowments are doing,’ I have to ask: ‘Who? Which ones?’ Our problem sets are not the same.”

Looking ahead, Scheer anticipates that over the next several years, there might be a shift in which asset classes perform the best.

“Market conditions are changing, which happens. Asset classes fall in and out of favor,” he says. “When I talk to my peer CIOs or people considering a role like this, my advice is to make sure you feel comfortable with what you’re invested in. Maybe that’s because you have a specialty or there are themes you feel strongly about—having that comfort level is ultimately going to be helpful over the long run. My goal is to generate as many scholarship dollars as I can. So I want to be able to do that in a way that feels solid to me and replicable.”

—Bailey McCann