| |Endowments are supposed to be the smart money, yet if you review the recent exhaustive paper on return performance, you will get a different impression. Large endowments do better than small endowments but when you compare with a simple 60/40 stock bond balanced fund there is not a lot of alpha generated. See “Investment Returns and Distribution Policies of Non-Profit Endowment Funds” from ECGI … Read more Endowments need help – Performance not strong versus balanced fund
| |Everyone likes to follow what endowments are doing because there is the assumption that they represent smart money. If universities are where the smart people are, then it stands to reason that their money managers are also smart. The return numbers suggest that endowments don’t have a lock on good performance. In fact, simple allocations have proven to be more effective at generating return. The Bogle model which is a simple variation on the classic 60/40 stock/bond mix is a perfect example. This asset allocation in made up of 40% US equities (total US stock index), 20% international equities (total international stock index) and 40% bonds (total bond index). The Bogle allocation works when compared with endowment allocation which have been tilted to alternatives and away from equities … Read more Endowment Models – Bogle Simplicity a Winner
| |This above chart from thetrustedinsight.com provides an interesting tale about asset allocation for large endowments. Forgot about the traditional 60/40 stock/bond mix. Forget about the 50/30/20 stock/bond/alternatives mix. If you don’t need liquidity, as is the case for the endowment portfolio allocations, a mix between liquid and illiquid is a better base framework. Hold private equity and real estate as core allocations. This core is for long-term appreciation and cash flow greater than bonds, but is generally illiquid. Take money from fixed income and cash. Take funds from public equities and use hedge funds, which may have mixed liquidity, as an additional return enhancer. The public equity and bond/cash portion of portfolios is between 25 and 50%, while hedge funds are from 7.5 to 32.5% for these key endowments. The majority of their allocations are not with traditional equity and bond beta … Read more What are Endowments Doing with Their Allocations?