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University Endowment Sued for Under performing the S&P 500
31–40 of 75 posts
Re: University Endowment Sued for Under performing the S&P 500
#32What's his theory of even having standing in the first place?
He's given them money, and wants it used prudently:
> He has donated about $5 million to his alma mater and received various honors and officials designations from the university, including the chairmanship of its investment committee in the 1990s.
Re: University Endowment Sued for Under performing the S&P 500
#33He makes a good point about paying tens in millions in fees to outside investment managers. Their fees are never worth it. I would imagine the entire investment management team could be a group of 5 people with investment experience who decide how to allocate the money into different Vanguard funds. Returns would be the same, maybe higher when you take out the 1-2% that management is taking out and putting into their own pockets.
Re: University Endowment Sued for Under performing the S&P 500
#34Beating the S&P on a return basis is totally irrelevant. Almost any diversified portfolio will have a lower absolute return than the S&P and a higher risk-adjusted return. If a school's endowment had the same return and volatility of the S&P 500, that would be quite disturbing. An endowment should be diversified across asset classes (metals, real estate, equities, bonds) and strategies (PE, hedge funds, VC, etc) and…
>If a school's endowment had the same return and volatility of the S&P 500, that would be quite disturbing.
Why? I understand why this is the case for smaller investors like individuals, but for a school endowment isn't the sheer size of the endowment and the theoretically near infinite investment time horizon part of the risk management? Some years or even some decades it will be down, but they aren't investing with the intent to spend any sizable portion of that money anytime soon.
Re: University Endowment Sued for Under performing the S&P 500
#35Beating the S&P on a return basis is totally irrelevant. Almost any diversified portfolio will have a lower absolute return than the S&P and a higher risk-adjusted return. If a school's endowment had the same return and volatility of the S&P 500, that would be quite disturbing. An endowment should be diversified across asset classes (metals, real estate, equities, bonds) and strategies (PE, hedge funds, VC, etc) and…
Thank you. The fund manager's comments suggesting that the index funds are unnecessarily risky make sense now.
The original article kind of made it sound like the fund invested in stocks and still managed to underperform the stock market. If you draw that assumption, it makes this sound like an open-and-shut case of negligence.
Re: University Endowment Sued for Under performing the S&P 500
#36Beating the S&P on a return basis is totally irrelevant. Almost any diversified portfolio will have a lower absolute return than the S&P and a higher risk-adjusted return. If a school's endowment had the same return and volatility of the S&P 500, that would be quite disturbing. An endowment should be diversified across asset classes (metals, real estate, equities, bonds) and strategies (PE, hedge funds, VC, etc) and…
>If a school's endowment had the same return and volatility of the S&P 500, that would be quite disturbing. Why? I understand why this is the case for smaller investors like individuals, but for a school endowment isn't the sheer size of the endowment and the theoretically near infinite investment time horizon part of the risk management? Some years or even some decades it will be down, but they aren't investing with…
Maybe for somewhere like Harvard that has an absolutely ludicrously sized endowment, but a more normal university can't really afford to absorb losses like that.
They need to withdraw from the endowment every year to pay expenses. If the stock market plunged and then they locked in losses by selling to pay expenses, they would run a real risk of having long term losses.
Re: University Endowment Sued for Under performing the S&P 500
#37Beating the S&P on a return basis is totally irrelevant. Almost any diversified portfolio will have a lower absolute return than the S&P and a higher risk-adjusted return. If a school's endowment had the same return and volatility of the S&P 500, that would be quite disturbing. An endowment should be diversified across asset classes (metals, real estate, equities, bonds) and strategies (PE, hedge funds, VC, etc) and…
> 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.
Over the last ten years, all the fancy-pants portfolios that Ivey League endowments used have generally under-performed a 60/40 portfolio:
* https://www.markovprocesses.com/blog/ivy-league-endowments-f...
* https://www.institutionalinvestor.com/article/b1hlc1hjfsbwfq...
Dartmouth has matched, Yale has beaten such a portfolio by 0.6%, and Princeton beaten by 1.1%.
We've had over 15 years of SPIVA keeping track of active management performance, and over such a time period most active managers can't beat market returns:
* https://www.ifa.com/articles/despite_brief_reprieve_2018_spi...
And if you're not one of the top schools:
> Dahiya and Yermack found that the performance of the typical endowment fund [from 2009-2016] was so poor that it would have earned substantially higher returns if its trustees had followed a simplistic investment strategy of holding 100% Treasury bonds and taken no equity market risk whatsoever.
* https://www.etf.com/sections/index-investor-corner/swedroe-w...
Dahiya and Yermack:
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3291117
This is from a sample of more than 29,000 endowment funds drawn from U.S. Internal Revenue Service filings. Of course they do note:
> Our performance results must be viewed in the context of the unusual market behavior during our 2009-2017 sample period […].
The paper was updated in March 2020.
Re: University Endowment Sued for Under performing the S&P 500
#38I'm struggling to understand why a university needs an endowment at all. Every year the universities accumulate more wealth and more parasitic non-academic staff, while simultaneously raising fees and delivering less value to students (degrees no longer guarantee jobs and student loans eat an increasing share of the graduates' earnings).
Maybe it is time to confiscate these endowments and use them to liquidate student loan debts.
Re: University Endowment Sued for Under performing the S&P 500
#39Earlier quoted context omitted.
> 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 h…
That's what the marketing department says. The actual returns paint a rather different picture.
Re: University Endowment Sued for Under performing the S&P 500
#40Some 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.