Abstract
The endowment model, presumed to be a paradigm of value-adding asset class diversification, is indeed a thing of the past. Large educational endowments in the U.S. have concentrated their investments — public and private — in ones that are moderately to strongly correlated with the Russell 3000 stock index, to the exclusion of virtually everything else. The effective asset allocation of these investors, collectively, is now purely U.S. equities with frictional cash of 3%. The endowments, however, have underperformed the stock market by more than 400 bps per year consistently over the past decade. Their cost of investing is high. I estimate that it is as much as 3% of asset value, annually. But estimated costs are not large enough to account for the entire margin of underperformance, which is a puzzle.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.