Thursday, September 24, 2009


NY Times details:

Steep investment losses have caused painful cutbacks at some of the nation’s best-known universities over the most recent fiscal year and have prompted questions about whether their endowments are taking too much risk.

But as the schools, one by one, disclose their numbers, the managers of these endowments are indicating their continued support for a diversified portfolio chock full of alternative investments like hedge funds, private equity and real estate — the very things that have caused so much trouble.

This portfolio strategy is sometimes called the Swensen model, after David F. Swensen, who heads the Yale endowment. On Tuesday, Yale disclosed the details of its year, reporting an investment loss of 24.6 percent, compared with an average drop of 17.2 percent for large funds, according to the Wilshire Trust Universe Comparison Service.

Mebane Faber (of World Beta) sums it up best, by not saying much at all:

Draw your own conclusions on endowment performance last year, fiscal year ending June 30th. Below are facts.

Here are those facts in chart form...

In their defense...
Preferring to emphasize their long-term results, the chiefs of many big endowments, including Harvard, Yale and M.I.T., have indicated they are sticking with their models. Notably, Mr. Swensen did not lay out Yale’s asset allocation for the coming year in his statement — something he has done in years past.
If they are perpetual, long term is what matters... but is there any entity that actually is perpetual?

Source: World Beta


  1. I've become a fan of your blog, but this is a meat-head post. First of all, this random list of endowments is missing many of the smartest. Secondly, it's a cheap-shot to call out an endowment (which by definition is perpetual and should be exposed to higher than average "risk") for underperforming a random benchmark for 12 months ending at some random point in time.

    No, I do not work, nor have I ever, at an endowment or foundation.

  2. Can't say I really disagree. I saw the post over at World Beta (great blog by the way) and took the easy way out and posted the figures listed there versus researching others.

    That said, I think your perpetual argument is great in theory, but horrendous in practice. People have very short memories. How else can you explain that the Harvard's of the world are laying people off / cutting programs? This isn't perpetual, but based off the fact that they became accustomed to tapping a percent of the massive gains they experienced over the previous 20+ years.

    In addition, these endowments are all reworking the structure of their plans, completely unnecessary if they truly were perpetual.

  3. The fact that an entity is susceptible to a recession (like most) and has administrators that have finite lives, does not make the entity itself finite and an impracticable.

    The fact that any (extremely) long-term investor lost money over any short-term horizon is irrelevant. That's my point.

    Keep up the great work and thanks for the reply!

  4. Actually not so sure it's meat-headed but needs some thought. First off that's not that random a list but the largest/most notable plus the Big Daddy (Swensen) who revolutionized thinking. Howsoever this list goes so goes foundation, endowment and high net worth thinking.
    2nd - Swensen started his revolution around 1980 at the beginning of the Great Moderation when alternative asset classes were unknown and therefore mis-priced. For the theory of long-term investing to hold true some form of EMH and the derived asset allocation models has to hold. Sadly for several years no asset classes have been correlated.
    Third - to the extent one saw the deluge coming was the time to re-position. Fourth - alt. investments are insufficiently liquid to allow that and will now be be treated differently in terms and prices. Fifth - the differences in performance have likely been priced out and risk-adjusted it's not clear there'll be an Alpha! :)

  5. Oops sorry - that previous comment should have said "no asset classes have been uncorrelated". The point being that to allocate between classes one is looking for a lack of correlation

  6. Mark writes: "First of all, this random list of endowments is missing many of the smartest."

    Which ones? I thought Yale and Harvard were the top ones.