Pope Francis taps Notre Dame Investment Guru for Vatican Bank

Pope Francis taps Notre Dame Investment Guru for Vatican Bank

The IOR, also known as the Vatican bank, is turning a new page and adding three new lay members to its Supervisory Board. According to Investment Guru at Notre Dame, Scott Malpass, this change is an "expression of a rich heritage of the Church engaging with laity.”

ROME – In December 2016 the Vatican announced that the lay board of the Institute for Works of Religion (IOR), also known as the Vatican Bank, had added three new members bringing the total count to seven.

This represented an effort to think outside the box for the IOR in the sense that it showed not only a strong support for reform and change within the Vatican institution, but also openness toward world-renowned lay experts and professionals to bring attention to the balance sheet.

The newbies are American Scott C. Malpass, Spaniard Javier Marín Romano and the German Georg Freiherr von Boeselager. They all have in common a vast experience in the banking and financial fields as well as the fact that none of them is Italian.

The latter caused a bit of patriotic indignation on behalf of Italian media outlets that pointed at the board as in the conspiratorial hands of “Americans, Opus Dei, and the Germans.”

In Italy, a strong stereotype exists describing the money-savvy American who comes to save the day. It’s the same in the Vatican, though in this case he’s a lay money-savvy American who’s sweeping in.

And that is precisely what Malpass, from Indiana, one of the three new board members, is here to do.

“As a life-long committed Catholic, I can’t imagine many things more important for me to support in any way I can the life of the Church and its mission of evangelization in this way,” Malpass told Crux. “Just as my faith life gives expression to other aspects, I have found that service to the Church illuminates my vocation more broadly.”

Malpass was called to the IOR after board members Clemens Börsig and Carlo Salvatori offered their resignations. Only a few days prior, Pope Francis had turned down a proposal by the board to create a Vatican investment fund in Luxembourg.

After the event the Vatican in a statement thanked the two former members for their contribution, adding that the resignation “can be seen in light of legitimate reflections and opinions concerning the management of an Institute whose nature and purpose are as particular as those of the IOR.”

Malpass: the American Money-Man

Scott Malpass Nov. 20, 2010; New York, NY, USA; (Credit: Matt Cashore-US PRESSWIRE.)

Scott Malpass Nov. 20, 2010; New York, NY, USA; (Credit: Matt Cashore – US Presswire.)

Malpass is not a complete stranger to the inner workings of the IOR; In the early days of Pope Francis’s pontificate he served as an external advisor to the Holy See banking reforms.

But most of his life has been dedicated to his Alma Mater, Notre Dame University in Indiana, where he serves as Vice President and Chief Investment Officer since 1989. Under his supervision, the Notre Dame endowment stepped up from the minor league to become the 12th largest in American higher education and the largest at a Catholic university.

The fact that Malpass was able to make this happen at a time when financial markets have been more volatile than ever and investors struggle to find substantial returns, only strengthens his image as a man with a keen eye for growth and profitable investments. A true American money-man.

“The appointment comes at a time when Pope Francis is more determined than ever to make the Vatican Bank a financial engine for good works around the world,” said Notre Dame President Reverend John I. Jenkins soon after the apointment. “The pope has placed enormous and well-deserved confidence in Scott’s integrity and investment acumen. Notre Dame could not be prouder.”

Notre Dame endowments: From David to Goliath

When Malpass returned to Notre Dame in 1988 after working for the Wall Street firm Irving Trust Company, the University’s endowment stood at $425 million. At the end of the 2016 fiscal year the university’s capital, pension and life income assets amounted to $10.4 billion.

The investment guru moved in and redeployed the portfolio toward global equities and alternative investments. “We are not speculators or traders. We’re investors looking for value, cheapness and inefficiency,” Malpass told Forbes in an interview.

“We have a long time horizon and attempt to do well in various economic environments.”

His long-term approach is partly responsible for his incredible success, which placed Notre Dame as one of the five high-performing big university endowments, according to Forbes.

It has been about 30 years since Malpass took the helm of the Indiana University endowments, a very long time compared to most other realities, which prefer to switch CIO’s more frequently. But Notre Dame backs the decision to have a continuity of leadership. This comes as no surprise since Malpass has guaranteed an impressive 12 to 14 percent annualized return during his tenure.

Your average U.S. bank will offer less than a 3 percent return and in most of Europe such a number is only a memory. Even big players such as the S&P 500 have been averaging 8 percent returns for the last decade, making Malpass a bit of a unicorn in the financial world.

But the Vatican is not interested in returns or in complicated financial solutions as shown by the resignation of Börsig and Salvatori. Of course Malpasse’s sophisticated navigation of the financial realm comes in handy, but his past in Catholic institutions and ethical approach is what sealed the deal.

“Just as my faith life gives expression to other aspects, I have found that service to the Church illuminates my vocation more broadly,” Malpass told Crux. “In addition to my almost 30 years managing Notre Dame’s endowment, I have had a longstanding passion to help dioceses, small catholic charities, religious orders, Catholic high schools, etc. improve their investments.”

Back in 2014, Malpass co-founded the Catholic Investment Services Inc., a non-profit that offers investment solutions to Catholic organizations in the U.S. in compliance with the USCCB’s guidelines for ethical investments.

It was “designed to bring superior asset management combined with appropriate screens for Catholic Socially Responsible Investing to all types of Catholic organizations,” Malpass said. “It’s very fulfilling for me to use my expertise in this manner.”

What’s the deal with the IOR?

The truth is that anyone “in the know” cannot truly define the IOR as an actual bank. It is more like a Chimera with a really shady past. It can be defined as a financial institution, theoretically independent from the Vatican Curia. The IOR’s main purpose is to provide financial services to members of the Catholic Church globally.

In simpler terms, a missionary in Chad (ranked the worst country to do business by Forbes in 2016), is able through the IOR to safely withdraw and deposit money given through donations and charity without fear of seeing the funds taken away by malfeasance or red tape.

The thing is that the IOR does not provide some of the main banking services: loans and financing. The inappropriately named Vatican Bank only handles assets by investing in long-term and low-risk portfolios as well as handling deposits and providing credit cards.

And here we come to the second Italian stereotype: not long ago it was well-known in Italy that if you wanted some money laundered and lived in the North, you would go to the Swiss, if you lived in the South you would approach the Mafia and if you lived near Rome you would turn to the Vatican bank.

But a lot has changed since Benedict XVI began cleaning up the IOR, following the Vatileaks scandals and the betrayal of a limelight-loving papal butler (true story).

Pope Francis later stepped-in with his now traditional hands-on approach. He assigned Monsignor Battista Ricca as the prelate and papal representative in the IOR. As of 2014 Jean-Baptiste de Franssu is the president of the IOR.

The bank is run by a “frocked” board and a lay board, called the Board of Superintendence, of which Malpass is a new member. Since beginning its journey toward reform in 2010 the bank has been working to define its role and function.

Pope Francis directed the bank’s reform toward its original mission to offer financial assistance to religious works, away from “capitalistic” enterprises. In the beginning of April, Italy finally placed the Vatican on the “white list” of states with cooperative financial institutions.

This was partly possible by getting lay people out and lay people into the IOR. The bank has closed thousands of accounts belonging to people who are not Vatican employees, religious orders or charities.

But the Vatican also included professionals in the banking and financial systems to come and be a part of the necessary reforms in the IOR. “Personally, I believe the Holy Father’s decision to reach out to lay people with certain experience and expertise in finance speaks very favorably of the kind of professionalization that Pope Francis hopes to see overseeing the patrimony of the Church,” Malpass told Crux.

“We are called to be stewards of the goods that God has entrusted to our care, and this effort can only improve the stewardship we can provide,” Malpass added. The inclusion of professionals and lay people in the IOR “is merely a new expression of a rich heritage of the Church engaging with laity.”

Malpass is joined on the Supervisory board by Georg Freiherr Von Boeselager who, apart from being well versed in banking policies, is also the brother of Albrecht, the Grand Chancellor of the Order of Malta.

Javier Marín Romano is the other new arrival at the bank and has held various offices with the Spanish Santander Group. Some speculate a tie between the group and Opus Dei, and it is known that the former president of the lay board Ettore Gotti Tedeschi who was kicked out of the IOR in 2012 also had relationships with the Spanish bank.

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