TIAA-CREF Expands Endowment Management Business With $1 Billion Investment

(March 29, 2011) — Teachers Insurance & Annuity Association of America-College Retirement Equity Fund (TIAA-CREF) has expanded its chief investment officer capabilities to an increasing number of endowments.

The New York-based firm that oversees $453 billion in pensions for teachers and academic researchers will put $1 billion of its own capital into Covariance Capital Management, a new investment fund which starts today. The investment reflects the asset manager’s aims to become a larger player in the outsourced money management market, which has boomed to $105 billion at the end of 2010 from about $20 billion five years ago, according to consultant firm Casey, Quirk & Associates. 

“In the last couple of years, we’ve heard from existing clients that there was an interest in the potential outsourcing of endowment management, and while TIAA was comfortable in the retirement arena, we weren’t organized in a way to offer endowment asset management services to large endowments,” Scott Wise, the former chief investment officer of Rice University who came to TIAA-CREF in May to build the firm’s new endowment business, told aiCIO in a telephone interview. “Clearly, over the last number of years, the interest in this approach has grown as more and more institutions have become interested in investing in alternatives — more complex strategies than traditional equity and fixed-income,” he said, noting that while smaller endowments with often limited internal resources have historically been more dependent on outsourcing, he has also witnessed heightened interest among larger endowments — with assets over $1 billion.

The group said it will provide the $1 billion in capital to seed the new Covariance Capital Management, providing investment and asset management services to nonprofits. Wise will lead the new group, which will operate independently as a wholly-owned subsidiary of TIAA, offering outsourced CIO services to nonprofits with assets under management of $100 million or greater. According to a statement by TIAA-CREF, it will invest client money in stocks, bonds, and alternative investments such as private equity, real estate, and hedge funds.

“We’ve been working on this new group over the last couple of months, but we held off making a formal announcement until we had a senior team in place. We’re currently in discussions with prospective clients to begin managing external capital soon,” Wise told aiCIO. Covariance will begin investing capital in the third quarter. As part of building its investment management team, Covariance hired executives including Michael Jawor, previously the chief investment officer at Man Group’s Glenwood Capital Investment Group LLC hedge fund and Daniel Feder, a former manager at Sequoia Capital in Menlo Park, California, and Princeton University’s endowment.

Roger W. Ferguson, Jr., President and CEO of TIAA-CREF, said in a statement: “This is part of our mission to aid and strengthen the nonprofit sector. Our clients have told us they are looking for a reliable and objective endowment management partner and we are proud to officially launch this business with a significant investment. Under the leadership of Scott and his experienced investment team, Covariance is uniquely positioned to manage multi-asset class portfolios and help institutions meet their goals.”