The University of Notre Dame Endowment Custom Case Solution & Analysis

Part 1: Case Evidence Brief - Notre Dame Investment Office (NDIO)

1. Financial Metrics

• Endowment Value: 13.1 billion dollars as of June 30 2018 (Exhibit 1).
• Long-term Performance: 20-year annualized return of 12.2 percent vs 6.9 percent for a 60/40 benchmark (Exhibit 2).
• Asset Allocation: Public Equities 14 percent, Private Equity 23 percent, Venture Capital 14 percent, Real Estate 11 percent, Multi-Strategy 18 percent (Exhibit 3).
• Spending Rate: Average annual spending between 4 percent and 5 percent of the trailing 12-quarter market value (Paragraph 12).
• Liquidity Profile: 35 percent of the portfolio is liquid within one year; 25 percent requires more than five years to liquidate (Exhibit 5).

2. Operational Facts

• Leadership: Scott Malpass served as Chief Investment Officer for 31 years (Paragraph 4).
• Team Structure: 30 professional staff members managing the endowment internally with a focus on external manager selection (Paragraph 18).
• Manager Relationships: Portfolio consists of approximately 150 external investment managers (Paragraph 22).
• Institutional Identity: Governed by the University of Notre Dame Board of Trustees and an Investment Committee (Paragraph 14).

3. Stakeholder Positions

• Scott Malpass (CIO): Emphasizes long-term orientation and deep personal relationships with fund managers as the primary source of alpha (Paragraph 25).
• Investment Committee: Prioritizes capital preservation and steady distributions to support the university operating budget (Paragraph 15).
• External Managers: View Notre Dame as a preferred limited partner due to its permanent capital base and consistent reinvestment (Paragraph 28).
• University Leadership: Expects the endowment to fund approximately 25 percent of the university annual operating expenses (Paragraph 8).

4. Information Gaps

• Specific management fee structures paid to external alternative asset managers are not disclosed.
• The exact impact of Ethical and Socially Responsible Investment (SRI) mandates on historical returns is not quantified.
• Detailed internal succession rankings for the senior investment team below the CIO level are omitted.

Part 2: Strategic Analysis

1. Core Strategic Question

• Can the NDIO institutionalize the personal social capital and relationship-driven alpha of Scott Malpass to ensure performance persistence after his departure?
• How should the endowment balance its Catholic identity and mission-related investment constraints with the requirement for top-tier financial returns?

2. Structural Analysis

Analysis of the NDIO model through the lens of Resource-Based View (RBV) and Asset Allocation Frameworks:

• Resource Rarity: The access to oversubscribed venture capital and private equity funds is a rare resource built over three decades of Malpasss tenure. This access is not easily replicated by newer or larger institutional investors.
• Imitability: The NDIO model relies on high-touch manager monitoring. Competitors can copy the asset allocation (the what) but struggle to replicate the manager access (the who).
• Organizational Fit: The permanent capital nature of the endowment allows for an illiquidity premium that matches the long-term needs of the university.

3. Strategic Options

4. Preliminary Recommendation

The NDIO should pursue the Institutionalization of the Malpass Model. The primary source of Notre Dames outperformance is its access to elite managers. Protecting this access during a leadership transition is the highest priority. A pivot to direct investing or a radical change in SRI policy creates unnecessary execution risk during a sensitive period of succession.

Part 3: Operations and Implementation Planner

1. Critical Path

The implementation must focus on a seamless transfer of external manager trust from Malpass to the successor. The critical path follows this sequence:

• Phase 1: Successor Identification (Months 1-3): Internal candidate evaluation and selection of Mike Donovan or a similar veteran to ensure continuity.
• Phase 2: Relationship Handover (Months 4-12): Structured joint meetings with the top 20 managers who contribute 80 percent of the portfolios alpha.
• Phase 3: Governance Formalization (Months 13-18): Updating the Investment Committee charter to define the limits of CIO discretion in the post-Malpass era.

2. Key Constraints

• Talent Retention: Senior staff may depart if they are passed over for the CIO role or if the new leadership style differs significantly from Malpasss approach.
• Manager Access: Top-tier venture firms use leadership stability as a criterion for allocating limited partner capacity. Any perceived instability could result in reduced allocations.

3. Risk-Adjusted Implementation Strategy

To mitigate transition friction, the NDIO should adopt a bridge leadership model. Scott Malpass should remain in an advisory capacity for 24 months post-retirement. This ensures that the social capital is not withdrawn abruptly. The 90-day action plan includes:

• Audit of all side-letter agreements and verbal commitments with external managers.
• Internal town hall to stabilize the 30-person investment team and communicate retention incentives.
• Direct outreach to the Board of Trustees to align on the five-year risk appetite.

Part 4: Executive Review and BLUF

1. BLUF

The University of Notre Dame Endowment faces a pivotal leadership transition. The 13.1 billion dollar fund has outperformed benchmarks by 5.3 percent annually over two decades by securing access to elite private managers. This performance is at risk because it is anchored in the personal relationships of Scott Malpass. To preserve this advantage, the university must appoint an internal successor to maintain continuity and formalize its relationship management processes. Success depends on preventing talent flight and ensuring that external managers view the transition as a continuation of the existing investment philosophy rather than a strategic shift. Speed and clarity in communication are the primary requirements for the next 12 months.

2. Dangerous Assumption

The analysis assumes that the alpha generated by NDIO is a product of the universitys brand and capital permanence rather than Malpasss individual talent. If the alpha is truly personal rather than institutional, the current asset allocation will fail to meet the 5 percent spending requirement without the specific manager access Malpass provides.

3. Unaddressed Risks

• Market Maturation: The alternative asset classes (Private Equity and Venture Capital) that drove historical returns are increasingly crowded. Past performance in these sectors may not repeat regardless of leadership.
• Regulatory Scrutiny: Increased political and regulatory focus on endowment tax status and spending levels could force a higher distribution rate, straining the long-term growth objective.

4. Unconsidered Alternative

The team did not evaluate a Decentralized Investment Office model. Instead of a single CIO, the endowment could be split into three autonomous units (Public, Private, Real Assets) reporting directly to the Investment Committee. This would reduce key-man risk but increase the difficulty of maintaining a cohesive total-portfolio view.

5. Verdict

APPROVED FOR LEADERSHIP REVIEW