Not One Ivy League Endowment Beat A Simple US 60-40 Portfolio Over Ten Years
So, I am writing our LP investor commentary and I come across this article. We believe there are structural reasons related to the commoditization of pedigrees, disappearance of illiquidity premia, and smart beta ETF revolution, as to why the 60/40 benchmark may never be beaten again utilizing endowment style, fixed asset allocation. The issue in Fund Management today is that few understand how to solve Allocators’ problems. And in the most acute cases, many Allocators do not think they have a problem. Hence, an overall cycle of decay in active management and emphasis on increased salesmanship over substance.
Now, before you read on, in defense of Endowments (whom I greatly respect as Investors), a couple of clarifications:
- The study uses the US 60/40 but it’s been quite an insane bull market for US equities and US assets in general versus their global counterparts over the past 10 years. Endowments and most investors invest globally and the level of global versus US exposure can make a big difference during the measurement period.
- Many Endowments have very long-lived investments with outcomes that may take 15 years or longer to ascertain, so even ten years is not a totally fair assessment.
- To the point above, because many endowment assets are illiquid, they are usually not marked accurately and according to many studies, marked below fair value. As such, true value may not be represented in any performance number.
Nonetheless, as someone who actually managed an Endowment styled portfolio with access to top investments globally, this overall theme of alpha decline is real. We can argue over the degree, but it has been a persistent feature of capital markets since I began as a professional nearly 20 years ago.
*Disclaimer – This commentary contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this commentary will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.