Simple 60-40 Portfolio Beats All Ivy League Endowments over 10 years

Simple 60-40 Portfolio Beats All Ivy League Endowments over 10 years

A new report shows that the complex and expensive endowment model hasn’t proved its worth since the financial crisis.

The performance of Ivy League endowments has trailed a passive portfolio of 60 percent U.S. stocks and 40 percent bonds over the past ten years — and has been more volatile to boot, according to a new report from research and analytics provider Markov Processes International.

MPI says this is the first time in the 16 years that it has been collecting data on all the Ivies that Yale, Harvard and the other elite colleges have lagged the indexed portfolio when looked at over a decade. The firm looked at performance for the period between July 1, 2008 and June 30, 2018. 

What’s more, MPI found that the volatility of the endowment model — which includes large allocations to private equity, real estate, infrastructure and other illiquid investments — is significantly higher than that of a simple mix of stocks and bonds.

The performance of Ivy League and other college endowments is closely watched by the industry, as other institutional investors have been adopting some version of the portfolio allocation model — often referred to as the Yale Model, pioneered by Yale CIO David Swensen — since the early 2000s. The perennial question has been whether the addition of expensive alternative investments, including hedge funds, is worth the trouble, given the cost, illiquidity, and underperformance of many of these funds.

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Source: Institutional Investor