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Alternative Market Briefing

Endowment performance shows allocation is not destiny

Tuesday, November 26, 2013

Bailey McCann, Opalesque New York:

For hedge fund managers chasing institutional dollars, new figures out from Charles A. Skorina & Company show that big ticket allocations may not always ensure security. In a new special report, Skornia shows that allocation and execution typically contribute to relative performance on roughly a 50/50 basis. Further, actively managed portfolios are not always better managed portfolios. " If you don't have a great active manager handy, then a prudent allocation earning index returns may not be a bad thing," Skorina writes.

To illustrate how this works in practice, Skorina looks at the overall performance of the top 12 ivy league and alt-ivy endowment portfolios based on the most recent data, accounting for recent changes in the investment teams of those endowments. The figures below show that endowments returned around 11.6% for the year according to the NACUBO-Commonfund survey for FY2013.

Data in the report shows that of a portfolio mix at these endowments which include: equities; fixed income; private capital; real estate, and hedge funds, hedge funds represented a 20% allocation. For that 20%, endowments saw returns of just over 7%, underperforming smaller allocations in equities, real estate, and natural resources. Hedge funds have been underperforming the S&P500 for much of this year, and had mixed performance last year. Based on this break down, figures suggest tha......................

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