Courtesy of the New York Times, a cautionary tale about the endowment investment strategies of large universities–which have underperformed the market in recent years. It turns out, surprise, surprise, that high returns were actually linked to high levels of risk (not to mention liquidity risk). And that the management fees at hedge funds and the like are much higher than for low-cost index funds and the like. And the hedge fund managers collect 20% of the up-side return and a percentage of the assets under management (they don’t reimburse for downside returns though, of course).See also:
Today, it’s hard to find a college or university that stuck with the older and far simpler allocation between stocks and bonds. Hedge funds alone currently have what is estimated at over $2 trillion in assets, much of it from large institutions.
College and university endowment returns for the most recent fiscal year, which ended June 30, are starting to roll in. And in many cases, they warrant a grade of “C” at best, and in some cases, an “F.” Harvard reported a 0.05 percent loss and a drop in its endowment of over $1 billion in the same period, even as a simple Standard & Poor’s 500 index fund gained about 5.5 percent. Harvard’s endowment decline is more than the entire endowments of roughly 90 percent of all colleges and universities....MORE
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