Cornell Endowment CIO to Depart | Chief Investment Officer

Cornell AJ Edwards AJ Edwards, Cornell UniversityCornell University’s CIO AJ Edwards will be stepping down effective March 31, the Ivy League school announced.

Edwards has spent eight years at the $6 billion endowment, first joining as a senior investment officer. He was then named CIO in May 2012.

He is the third CIO to resign in the last six years. James Walsh stepped down from his post in 2010 after four years, and Walsh’s successor Michael Abbott suddenly resigned in 2011 just six months into the job. “It had become apparent that his style of conducting business is inconsistent with Cornell’s policies and expectations,” the university said about Abbott’s exit.

The endowment has appointed senior investment officers Cody Danks Burke and Roger Vincent as interim-CIOs. The university is expected to select Edward’s permanent replacement by April 15.

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“The endowment has had well over $3 billion in investment gains since the depths of the recession,” the outgoing investment chief told the Cornell Chronicle. “The investment office today is very strong, and I am proud that the quality of the staff has improved over the last several years through internal promotions and recruiting at all levels.”

Cornell’s CFO Joanne DeStefano also praised Edwards’ ability to help the endowment recover from the 2008 crisis, and said he has been “active in identifying new markets in which to invest.”

During his tenure, Edwards also improved the investment office’s internal decision-making process and implemented a new research management system.

Prior to his time at Cornell, Edwards managed the pension plan at Northeast Utilities (now-Eversource Energy). He also served in various positions in equity management at Connecticut-based Wright Investors’ Service.

He holds an MBA in finance from the University of Connecticut and a master’s in mathematics from Fairfield University.

Blackstone had more capital rolling in via separate accounts and custom vehicles than its massive commingled funds as of early 2015, COO Tony James said in an earnings call.

“We’re much more in the business of creating special vehicles for LPs [limited partners] that want certain things,” James told listeners. Those “things” could include shortened redemption periods, lower management fees, greater transparency, co-investments, and access to assets that don’t fit within a typical commingled structure.

Private equity firms across the board have been seeing—and meeting—rapidly rising institutional appetite for special arrangements, Preqin data have shown.

But doesn’t mean commingled fund investors are getting a raw deal, according to an in-depth analysis by Yale Law School’s William Clayton.

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Why give a top-notch opportunity to LPs paying discounted fees, for example, unless it’s unworkable in the main fund?“Most forms of preferential treatment enabled by individualized investing create new value for the preferred investors who receive the favored treatment, rather than appropriating that value from non-preferred investors,” Clayton found.

Most value-additive perks of separate-account investing wouldn’t be reaped at all if these structures ceased to exist, he argued. Why give a top-notch opportunity to LPs paying discounted fees, for example, unless it’s unworkable in the main fund?

That high-conviction deal also would also contribute to a firm’s track record in a commingled fund, Clayton noted, but has little fundraising upside in a side vehicle.

“The value of pooled-fund track record thus serves as a strong source of protection for pooled-fund investors,” he added—possibly to the extent of favoring them over separate accounts.

LPs’ desire for some control over allocation decisions has been another major driver in the custom-vehicle boom, Clayton wrote. Commingled fund investors have essentially none, beyond their initial allocation choice. Co-investments empower LPs in way that’s impossible if they’re one of dozens or hundreds of institutions, where reaching consensus would be impossible in practice.

While the trend of customized private-equity vehicles doesn’t meaningfully conflict with commingled investors, Clayton argued, it’s hurting asset owners as a whole in one major way.

“An interesting side effect arises out of the growth in individualized investing: The fact that the incentive for broad coordinated action among private equity investors weakens as investors’ interests become more individualized,” the author found.

When many of the most powerful asset owners have negotiated acceptable fees and transparency via special arrangements with private equity firms, the fight for fair universal standards may be left up to those least able to win it.

Read William Clayton’s research paper, “In Praise of Preferential Treatment in Private Equity,” published March 16.