Beating 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.<p>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.<p>A core component is usually the S&P 500, with the rest invested in assets and strategies that have low correlation to the market.<p>We don't know the volatility of the endowment, so maybe it is just shitty, but having a lower return than the S&P is to be expected. And if it did match the S&P, that would indicate to me that perhaps too much risk is being assumed.<p>Non finance people make this mistake all the time, thinking that return is something anyone cares about. Return is synthetic, in that any positive return can be trivially leveraged up to whatever number you desire. Because of this, what matters is the Sharpe ratio, because it gives you a blueprint of sorts: it tells you how your volatility and return will scale with leverage.
Some 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.
From the article, it appears that the suit hinges on a claim that “The CU Foundation has underperformed the S&P 500 fund by approximately 5.49 percent per year from 2010 to 2019.”<p>Does anybody have experience here? Is this an actual case? It seems kind of easy to cherry-pick historical dates that some investing body <i>could have</i> allocated resources some other way.<p>It's worth noting that he does have skin in the game: he's donated $5M to the foundation over the years, but isn't that kind of the risk you take by giving your money over to someone to manage? That they might make choices that you might not?
This guy sounds like an idiot. He's picking the last ten years and comparing it to the S&P? The foundation is probably more risk-averse and would probably lose less in a bear market than the S&P.
He 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.
I'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).<p>Maybe it is time to confiscate these endowments and use them to liquidate student loan debts.