Brief but telling article about the success of university (er, college) endowment funds:
Their early moves into hedge funds, venture capital, private equity, property, distressed debt and the like brought outsized profits. Universities and foundations have also benefited from geographical diversification, especially into emerging markets. Foreign equity was their best-performing asset class last year, making 24.7% according to a survey by the Commonfund Institute, which manages pooled investments. Endowments have also revolutionised commodities. By making a killing in “hard” assets like timber in recent years, the universities have helped to turn them from industrial assets to financial ones in investors’ eyes. Harvard keeps three lumberjacks on its team, the joke goes.
Indeed, for university endowments to call all of these assets “alternative” is something of a misnomer. It is assets such as government bonds, once safely in the mainstream, that must fight for their place in university portfolios. Today the typical large endowment has 41% of its holdings in assets other than shares, bonds and cash, says NACUBO. In the past couple of decades, illiquid investments, which are less efficiently priced than liquid ones, have rewarded those brave enough to buy them. Thus big, bold endowments have thrived by resisting what John Maynard Keynes—a proponent of asset diversification—called the “fetish of liquidity”.
Really good point — I don’t spend enough time researching illiquid, relatively unknown and inefficent markets. Based on my own track record, I don’t know if the liquidity of my investments have played a major factor, but I’m pretty unsystematic, to be honest. Here in Canada, our university endowment funds are a little behind, and I’m sure have more regulation than their US counterparts with regard to the assets and markets they can invest in. Strangely, that second article seems to contradict the premise of the first; “University endowments also have short time horizons on their investments, which leaves them more exposed to the whims of the market,” versus “In principle, their investment horizon lasts not weeks, months or years, but forever.” Uhh, hmm.