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University Endowment Sued for Under performing the S&P 500

institutionalinvestor.com

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Re: University Endowment Sued for Under performing the S&P 500

#2

Post by alexanderdou »

From the article, it appears that the suit hinges on a claim that “The CU Foundation has underperformed the S&P 500 fund by approximately 5.49 percent per year from 2010 to 2019.”

Does anybody have experience here? Is this an actual case? It seems kind of easy to cherry-pick historical dates that some investing body could have allocated resources some other way.

It's worth noting that he does have skin in the game: he's donated $5M to the foundation over the years, but isn't that kind of the risk you take by giving your money over to someone to manage? That they might make choices that you might not?

Re: University Endowment Sued for Under performing the S&P 500

#3

Post by solaxun »

alexanderdou wrote: post #2

From the article, it appears that the suit hinges on a claim that “The CU Foundation has underperformed the S&P 500 fund by approximately 5.49 percent per year from 2010 to 2019.” Does anybody have experience here? Is this an actual case? It seems kind of easy to cherry-pick historical dates that some investing body could have allocated resources some other way. It's worth noting that he does have skin in the game: h…

Not a lawyer, but I doubt it's a case. Endowments have much longer investment horizons and typically lower risk appetite that wouldn't typically have an investment policy tilted towards 100% equities. They likely have a fair amount of investment in fixed income, which is always going to under-perform equities in the long run.

That said, ~5.5% below the market every year is a pretty shitty result, at least worth putting someone's feet to the fire over.

Re: University Endowment Sued for Under performing the S&P 500

#4

Post by mlthoughts2018 »

solaxun wrote: post #3
alexanderdou wrote: post #2

From the article, it appears that the suit hinges on a claim that “The CU Foundation has underperformed the S&P 500 fund by approximately 5.49 percent per year from 2010 to 2019.” Does anybody have experience here? Is this an actual case? It seems kind of easy to cherry-pick historical dates that some investing body could have allocated resources some other way. It's worth noting that he does have skin in the game: h…

Not a lawyer, but I doubt it's a case. Endowments have much longer investment horizons and typically lower risk appetite that wouldn't typically have an investment policy tilted towards 100% equities. They likely have a fair amount of investment in fixed income, which is always going to under-perform equities in the long run. That said, ~5.5% below the market every year is a pretty shitty result, at least worth putti…

Attempting to bring the suit is likely itself just a smear tactic, to apply pressure to fire someone.

Re: University Endowment Sued for Under performing the S&P 500

#6

Post by thrill »

alexanderdou wrote: post #2

From the article, it appears that the suit hinges on a claim that “The CU Foundation has underperformed the S&P 500 fund by approximately 5.49 percent per year from 2010 to 2019.” Does anybody have experience here? Is this an actual case? It seems kind of easy to cherry-pick historical dates that some investing body could have allocated resources some other way. It's worth noting that he does have skin in the game: h…

Picking the previous decade in a market that has mostly simply gone up is hardly cherry picking. The problem with choosing simple funds such as the plaintiff's example of the Vanguard S&P 500 Index Fund is that selection of such leaves little room to offer political benefits to "being on the endowment committee". The rebuttal by the current endowment board that they have too much money to risk it in one asset class is trivially overcome by a grossly simple percentage of bond allocation - but such simple investment approaches don't keep dozens of active managers engaged.

Re: University Endowment Sued for Under performing the S&P 500

#8

Post by Lazare »

solaxun wrote: post #3
alexanderdou wrote: post #2

From the article, it appears that the suit hinges on a claim that “The CU Foundation has underperformed the S&P 500 fund by approximately 5.49 percent per year from 2010 to 2019.” Does anybody have experience here? Is this an actual case? It seems kind of easy to cherry-pick historical dates that some investing body could have allocated resources some other way. It's worth noting that he does have skin in the game: h…

Not a lawyer, but I doubt it's a case. Endowments have much longer investment horizons and typically lower risk appetite that wouldn't typically have an investment policy tilted towards 100% equities. They likely have a fair amount of investment in fixed income, which is always going to under-perform equities in the long run. That said, ~5.5% below the market every year is a pretty shitty result, at least worth putti…

> Endowments have much longer investment horizons and typically lower risk appetite that wouldn't typically have an investment policy tilted towards 100% equities.

That does make some sense, but actually endowments typically invest quite a bit in in riskier asset classes. From https://caia.org/aiar/access/article-1160:

> The average US endowment fund held roughly 70 per cent in traditional asset classes (public and private equity, bonds and cash) with the remaining 30 per cent invested in alternative assets.

Alternative asset classes basically means "anything other than stocks and bonds", and includes stuff like derivitives, commodities, PE deals, venture capital, etc. And CU's investment in alternative asset classes is called out explicitly in the complaint.

So I don't read this as a complaint that CU is playing too safe, it's that they made too many risky bets, and lost.

I'm not sure that makes the law suit any more viable, but "the endowment gambled away my donation" is a much more sympathetic complaint than "the endowment sunk my donation into bonds instead of gambling it like I'd hoped"!

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