Commonfund CEO Verne O. Sedlacek Talks about Improving the Performance of Nonprofits Through Better Investments

In 2006, nonprofits earned about $1.8 trillion, while accounting for 8.3% of all wages and salaries paid to workers in the U.S. Nonprofits manage $3 trillion in assets, a number double that of the hedge fund industry. Over the last ten years, the number of nonprofits has grown 30%. As Commonfund CEO Verne O. Sedlacek sees it, the nonprofit industry is not just growing, it’s where the action is. “When you look around, you can see it’s the growth of nonprofits that’s fueling the economy,” Sedlacek told an SOM audience on April 1 as part of the Leaders Forum lecture series. “Working in nonprofits is a great way to be challenged and contribute to society.”

As CEO of Commonfund, Sedlacek leads a company that manages $41 billion in assets for 1,800 nonprofits. Commonfund was created in 1971 to help colleges and universities put their endowments to better use. “Most were investing in fixed-income instruments,” he said, adding that by being too conservative, the organizations were poorly serving future generations of students.

Sedlacek himself ended up in financial management for nonprofits by accident. After college, he got a job at Arthur Andersen, but found the work unfulfilling. A call from a headhunter led him to the Harvard Management Company. Sedlacek stayed there 15 years. (Read about the recent appointment of Jane Mendillo ’84 as president and CEO of the Harvard Management Company.)

“Everyday brought a new challenge,” Sedlacek said. “Harvard was enormously financially challenged at the time. Harvard had a lot of debt, it just wasn’t on the balance sheet.” That debt, he said, was deferred maintenance on buildings constructed in the 1920s and 1930s that were falling apart. It’s a problem many universities face. Rather than drain the endowment to do the work, Sedlacek and his coworkers decided it would be better to borrow money at a lower rate than the endowment investments earned. Sedlacek said that what might have seemed an obscure fiscal decision freed Harvard to begin building the largest endowment in higher education.

But his biggest role during his time at Harvard was the secret purchase of 250 acres of land in Allston, which sits across the Charles River from the university’s Cambridge home. To get the land without causing an uproar, Sedlacek was tapped by Harvard’s president in the late 1980s to create a separate, secret company to buy the land. “I was the president, treasurer, and sole director,” Sedlacek said. “I couldn’t tell my boss, my wife, or my kids. I was told the assignment would take two years. It ended up taking 10.”

Sedlacek left Harvard in 1998 for the private sector before joining Commonfund in 2002 as its COO. He became CEO the following year. Sedlacek said that though he lost employees to tech firms and then hedge funds the first couple years, many recently have come back, partly because of greater job security, but also because they can earn 50% more as senior nonprofit investment managers than they could have three years ago. Asked about whether he’d consider going back to a university, Sedlacek demurred. “I have 1,800 clients but one objective — to increase performance,” he said. “When you’re the CIO of a school like Yale, you’ve got one client, but 1,800 objectives. It’s a much harder job.” 

Listen to or watch Verne Sedlacek discuss the new opportunities and challenges in the nonprofit industry.