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Some of these large asset managers are awful. Last time I was looking at the people managing California Public Employee Retirement System fund, and it was making abysmal moves all over the place. I felt sorry for the people with their savings there.
An endowment should be diversified across asset classes (metals, real estate, equities, bonds) and strategies (PE, hedge funds, VC, etc) and have a moderate but stable return stream.
A core component is usually the S&P 500, with the rest invested in assets and strategies that have low correlation to the market.
We don't know the volatility of the endowment, so maybe it is just shitty, but having a lower return than the S&P is to be expected. And if it did match the S&P, that would indicate to me that perhaps too much risk is being assumed.
Non finance people make this mistake all the time, thinking that return is something anyone cares about. Return is synthetic, in that any positive return can be trivially leveraged up to whatever number you desire. Because of this, what matters is the Sharpe ratio, because it gives you a blueprint of sorts: it tells you how your volatility and return will scale with leverage.
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…
If you assume the above is true like me, then 100% equities for any funds not needed for 5 years is appropriate.
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…
Attempting to bring the suit is likely itself just a smear tactic, to apply pressure to fire someone.
Earlier quoted context omitted.
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?
If this is true, it has large and significant ramifications on optimal portfolio construction.
Earlier quoted context omitted.
It isn't possible for bond markets to collapse at the same time as stocks?
It happened during Coronavirus, but historically bonds have been counter cyclical. Some are worried that the paradigm has changed, and that bonds are no longer uncorrelated. If this is true, it has large and significant ramifications on optimal portfolio construction.
I argue that this is what has changed:
"Treasuries have also benefitted from the wider adoption of non-cash collateral since the crisis. Just over $1.8 trillion in cash was posted as collateral against loans and other transactions in 2008, with $1.3 trillion coming in the form of securities and other instruments, according to data provider IHS Markit. A decade later, those positions have inverted, with non-cash collateral balances standing at $1.6 trillion, compared with $870 billion for cash."[0]
and
“If an institution wishes to use [Treasury] assets for financing, to gain yield through lending them out or to meet their HQLA requirements, putting the securities into triparty is the most efficient way to achieve those goals”[0]
Since treasuries (and bonds in general through collateral transformation, emphisis on "non-cash collateral" above meaning not just treasuries) are being used to finance more risk asset purchases.
[0] https://www.bnymellon.com/us/en/what-we-do/markets/aerial-vi...
If they made any guarantees about profit that would be breaking securities laws, so what case could he have?
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…
Would you compare returns of a cash portfolio against the S&P500? That would be ridiculous.
I don't know the weights of this portfolio, however the article states "CU’s diversified portfolio" so I'd imagine it's more than the S&P.
> abysmal investment performance, which could have been significantly improved by simply investing in broad market U.S. equity index funds and not being over weighted in actively managed investment and ‘alternative investments,’
Everything's easier in hindsight.
This is not a question of the investment managers, but of the board of trustees of the fund. The investment managers simply execute the board's wishes, hopefully with some useful back-and-forth on how best set and do this. How the investment managers can be assessed against the goal set to them by the board. How wise the board's strategy is, is a separate question.
This seems more a request of the board to only invest in the S&P500, and to do so passively. For a large fund, in my opinion, this is folly - and this is without going into an active/passive discussion: Over the long term larger companies simply don't survive all that well. Growth and change comes from newer or reborn companies, see: FAANG, and this is equally true outside of internet companies. To stay passive in the S&P ignoring smaller companies seems short-sighted, and a university endowment should look longer, decades out.
Looking longer comes to investment strategy, which is essentially at a minimum matching future liabilities against assets. For this I'd suggest a composite of Russell 3000 instead of S&P500, an MSCI Global Index (this is complex - Anglo markets have a high level of market capitalisation vs. GDP, but in non-Anglo markets, take Germany, China) funds are mainly not raised via equity, and listed companies have a huge skew not representing the economy... or even something radically different. Something including forests at least.
I could go on but feel this could turn into a ramble. The above should be enough.