Key Takeaways

  • Scott Malpass expanded the University of Notre Dame endowment from $400 million in 1988 to over $20 billion across 32 years as chief investment officer.
  • In 1988, endowment distributions funded roughly 5% of Notre Dame's total operating budget; today, that allocation supports between 35% and 40%, raising the stakes of liquidity planning.
  • Malpass restructured board governance alongside committee chairs Bob and Jay, securing full internal delegation for manager selection while refocusing the board on risk and liquidity.
  • Market corrections in 2000 and 2008 demonstrated how overlapping lockups across private equity, hedge funds, and public equities create sudden, severe illiquidity.

Delegating Manager Selection to Focus on Risk

In 1988, Scott Malpass stepped into the chief investment officer role at Notre Dame at age 26. The endowment stood at $400 million. To scale capital across three decades to $20 billion, Malpass altered how the university made investment decisions. He pushed to strip the investment committee of its traditional manager-picking duties and secure an operating budget for internal staff and travel.

“We needed to change the whole approach honestly and thank God I had those strong investment committee chairs we talked about earlier and Bob and Jay,” Malpass said. “I basically laid out a blueprint for what I thought was going to be critical and it started very simple. I needed more of a budget to hire talent and build a team and for travel.”

Once internal staff took full ownership of manager diligence, the board shifted to higher-order balance sheet oversight. “Eventually, I would say the two things the investing committee really focused on, which they should, was risk and liquidity,” Malpass explained. “What kind of risk are we taking and what kind of liquidity do we have in especially in the time of emergencies.”

The Compounding Trap of Operating Dependency

When an institution expands its budget around asset returns, the risk profile changes. In the late 1980s, Notre Dame could absorb market shocks because the endowment carried a minor fraction of the university's operating burden. Decades of asset growth altered that dynamic.

“I try to remember when I started in 1988, endowment spending as a percent of the total budget was probably under 10%. Probably like 5%,” Malpass said. “And now it's probably close to 40, mid-30s at least. That's a big difference.”

When an endowment funds 40% of payroll, aid, and capital projects, illiquidity ceases to be a theoretical balance sheet problem. It threatens basic operations. This reality forces mature institutions to manage liquidity through strict reserves, because selling public assets during a market rout to meet annual distributions permanently impairs compounding.

The Overlapping Lockup Illusion

Early in an investing career, allocators frequently focus on gross returns over downside exposure. Market downturns reorder those priorities. “As a younger CIO, you focus on returns a lot more than you do risk,” Malpass noted. “And I think the telecom bust and bubble in 99 2000 I learned a lot about risk.”

The 2008 global financial crisis revealed how illiquidity compounds across asset classes at the exact same moment. Allocators often view hedge funds or long-only public managers as liquid shock absorbers against long-duration private equity. In a broad liquidity crunch, redemption gates and contractual lockups trigger simultaneously.

“And the global financial crisis too in some ways just how much capital can you really lock up?” Malpass said. “I mean we have the private book plus public managers have lockups, hedge funds have lockups. All of a sudden now you got a lot more of your fund locked up than you thought.”

Why It Matters

When institutional operating budgets become heavily dependent on endowment distributions, illiquidity risk compounds faster than headline returns. The 2008 crisis proved that gating mechanisms in hedge funds and public mandates lock up capital at the exact moment private equity capital calls accelerate. Allocators who fail to separate manager selection delegation from board-level liquidity buffers find themselves forced sellers in down markets.