Colleges and universities have amassed hundreds of billions of dollars in endowment assets. A study on the National Association of College and University Business Officers found that average endowment assets for 791 American colleges and universities amounted to over $400 billion in 2008.

Endowments are permanent pools of capital that provide a regular stream of income to support the mission of the organization. As they have grown in size and in importance, more institutions are recognizing the need for full-time, professional management of their endowments. This has created opportunities for investment professionals who wish to oversee sizeable portfolios which are often invested in interesting asset classes and strategies. (Learn more in How do university endowments work? )

Investment Office

Most colleges and universities with endowments larger than $400 million hire one or more investment professionals — often referred to collectively as the investment office or investment staff. Their task is to profitably manage and invest the endowment in order to meet the organization’s financial and investment objectives, as outlined in the investment policy.

An investment office may range from a single individual to dozens of professionals, depending on both the size and complexity of the endowment and the priority an institution places on quality endowment management. A mid-sized investment office is typically headed by a chief investment officer (CIO) and supported by senior investment officers (often called directors or managing directors). The latter usually specialize in one or more asset classes. and may be supported by investment analysts, the junior members of the team. (Frustrated stock pickers rejoice. Asset class selection is simpler and safer, see Diversification: It’s All About (Asset) Class .)

Education Background

The best educational background for those pursuing a career in endowment management includes majors or substantial course work in economics, finance, accounting, investments and/or business. An MBA is a typical degree, especially for those who wish to advance beyond the analyst level. Even more beneficial is earning the chartered financial analyst (CFA) designation, the premier professional credential in the investment community. The CFA designation demonstrates proficiency and integrity in portfolio management and investment analysis.

Professionals hired into investment offices have often gained financial or investment experience at banks, money managers or consulting firms. Analysts may be hired from the accounting or finance areas of the college. (These certifications require time and money, but combined programs are making obtaining both more realistic. Read CFA, MBA. Or Both? )

Responsibilities

Specific responsibilities of the investment office typically include the following:

• Developing the investment policy, including return objectives, relevant risks, asset allocation guidelines, provisions for rebalancing. appropriate portfolio and asset-class benchmarks, and considered views on indexing and currency hedging. A strong investment policy provides a good foundation for effective endowment management. (Like a tune-up for a car, this re-alignment should minimize trouble down the road, for more see Rebalance Your Portfolio To Stay On Track .)
• Implementing the investment policy effectively and efficiently. After the adoption of an investment policy, it must be translated from theory into practice through specific actions.
• Managing risk. Determining which risks are important and how they should be addressed is key to avoiding disasters and producing strong results.
• Researching new asset classes and strategies.
• Performing due diligence (research and analysis) on new and existing money managers. Hiring and firing managers when appropriate.
• Deciding when and how to most effectively utilize consultants

Although there is often some overlap of roles and responsibilities, in a properly staffed and well-run investment office, the CIO spends most of his or her time on broad, strategic issues such as asset allocation. A senior investment officer focuses on manager due diligence and specific asset class issues, while an analyst does more number crunching, data tracking and reporting. (Got a hot stock tip? Follow up on it with these tips to avoid getting burned. Read Due Diligence In 10 Easy Steps .)

Actual security selection is typically not a responsibility of the investment office. Virtually all endowments employ outside money managers to perform this function. If you are attracted to frequent trading or the buying and selling of securities, working in a college or university investment office is not the career for you.

Work Environment

The benefits of working in a campus investment office are numerous. They generally include:

• Interesting and exciting work, because endowments often lead the exploration of alternative asset classes and new investment strategies.
• The satisfaction of knowing that your successful efforts directly impact and improve the worthy mission of higher education.
• A supportive and collaborative community of investment professionals. Despite serious competition to post great returns, it’s not difficult to find mentors who will guide you, provide advice and assist your career.
• An attractive work environment — in addition to their aesthetic beauty, college campuses abound in entertainment and educational activities: sports, arts, music, guest speakers, etc.
• A favorable work/family balance, as all-nighters are prevalent only among the students. (Experience and hard work go a long way toward securing a position in this challenging field see 10 Steps To A Career In Hedge Funds .)

A common disadvantage of working in a college or university investment office is having your best ideas overridden by an oversight committee or board too deeply involved in implementation. This results from poor governance and occurs when the division of responsibilities between investment office and the governing committee or board are not clearly defined or do not provide the investment office with a sufficient level of authority. As David Swensen, CIO extraordinaire of Yale University, wrote in Pioneering Portfolio Management, a clear definition of investment staff and committee roles is crucial for the effective implementation of a portfolio.

Another potential disadvantage is a level of pay far below Wall Street or hedge fund standards. However, as institutions increasingly recognize the importance — and payoff — of superior endowment management, pay has become more respectable and incentive compensation programs are now common, narrowing the pay gap between college and university investment professionals and those elsewhere. In fact, most senior individuals who leave the endowment world do so, not because of insufficient compensation, but because too many of their best ideas were overridden by their board or committee usurping staff’s role.

Opportunities for Advancement

The opportunities for career development and advancement are excellent for investment professionals at colleges and universities. It’s a natural career progression to advance through the ranks from analyst to senior investment officer to CIO — either within an institution or by moving to a different one. Nonprofit investment officers are also highly sought after by money managers, consultants and outsourced CIO firms. Quite a few former investment officers have started up successful companies providing asset management or outsourced CIO services.

Tips for Success

College and university investment professionals are often times well-served by a contrarian mindset. Investors rarely benefit from pursuing the hot manager or asset class. A willingness to resist the tide of popular (and hence consensus) opinion often leads to superior investment returns, although not without career risk. Still, the most successful investment officers do not hesitate to espouse contrarian and difficult decisions. The most profitable actions are rarely the easy ones. (Learn more about contrarian investing in Buy When There’s Blood In The Streets .)

The ability to perform strong due diligence on asset classes, managers and strategies is key to strong investment performance. An ability to accurately evaluate people — their strengths, weaknesses, character, competencies and philosophy — will greatly assist in this process. Another strategy for success is to investigate those asset classes and strategies that the best and brightest CIOs are pursuing, especially when the majority of investors are uninterested or fearful. Finally, attending industry conferences is very helpful in establishing relationships with fellow investment professionals and in educating yourself on all aspects of the institutional investing business.

The above factors are important because they will assist you in generating excellent returns over the long-term, which is the real key to success and career advancement.

Conclusion

A career in a college or university investment office can be interesting, challenging, financially rewarding and can provide great satisfaction as your efforts lead directly to greater resources for educating the leaders of tomorrow.