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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

#11

Post by timavr »

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…

We don't know what is their risk profile.

The goal should never be to beat the market, but to beat the market relative to risk exposure.

I don’t doubt though that a lot of money is wasted on fees and salaries can be preserved via passive investing.

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

#13

Post by birken »

thrill wrote: post #6
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 i…

It isn't possible for bond markets to collapse at the same time as stocks?

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

#14

Post by elliekelly »

edgefield0 wrote: post #12

I don't understand how the plaintiff has a case here as there are no damages.

It seems he’s seeking class-action status and looking to define the class as all students who have attended the school in the last decade. It sounds like he’s alleging that because endowment returns were “too low” and because active management fees paid to third party investment advisers were “too high” the students have been harmed in the form of higher tuition.

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

#15

Post by smabie »

Lazare wrote: post #8
solaxun wrote: post #3

Earlier quoted context omitted.

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…

The alternative assets are less risky, because they have less market exposure, and when uncorrelated (or less correlated) return streams are mixed together, the volatility of the portfolio is reduced.

It's very common that a shitty investment with high volatility and low returns can actually improve the risk adjusted returns of a portfolio. Like gold, for example.

Also, hedge funds are significantly less risky than holding the S&P 500, since most funds have less than 100% net long exposure. And market neutral funds have 0% net long exposure.

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

#17

Post by mbbennis »

ALL_IN_VTSAX wrote: post #7

All-in VTSAX is a tried and true strategy

I've seen this strategy around the web on reddit and bogleheads and I appreciate the sentiment, but 2020 has made me more aware of risk than ever before.

I feel like the past decade has given investors a false sense of confidence about their stomach for risk. Especially young investors who enter the market AFTER 2008. On top of that, the extremely risky options available on platforms like robinhood make investing in 100% stocks look like a risk-averse choice.

Sure, if you're 22 100% VTSAX is reasonable. But I feel like this approach is too common given the risk involved. Staying the course with an asset allocation you can stomach is more important than potential for gains

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

#19

Post by throwawaygh »

xxpor wrote: post #10

What's his theory of even having standing in the first place?

Who knows. He's a large donor, but donors have trouble suing institutions over conditional gifts. So even if he made a gift that was conditional on beating the S&P, which would be a rather extraordinary string to attach to a gift, odds are stacked against him.

Guess: he knows he doesn't have a winning case but wants to raise hell. If the fund moves to more passive management then he won either way.

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

#20

Post by shajznnckfke »

edgefield0 wrote: post #12

I don't understand how the plaintiff has a case here as there are no damages.

Does the donor have some right that his donations be used as advertised? Could a donor sue because a charity squandered the money by spending it hookers and blow? Does poor investment stewardship resulting in the charity having 20% less money damage the donor differently from wasting 20% of the money? I’m not a lawyer, but morally I think the university is in the clear as long as their waste or arguably poor stewardship was reasonable. Did they knowingly make bad choices (especially if some kind of personal benefit/self-dealing was involved) or through an honest effort come to a different conclusion than the donor preferred?

Subjectively, I get the impression that the lawsuit is performative and the donor is trying to pressure the endowment to engage in a more modern textbook passive investment strategy. I don’t blame him - I feel the wealth management industry acts as a parasite in many cases. This case sounds like a common arrangement for a university endowment, though, so I feel it would be hard to defeat with a lawsuit. But I bet the suit gets the university a bit of a break on those fees.

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