Endowment Investor Asset Allocation

Post on: 16 Март, 2015 No Comment

Endowment Investor Asset Allocation

Around the web

  • Research  magazines revisit of Pioneering Portfolio Management. [here]
  • BlackRock on 10 myths surrounding alternative investments .
  • Gene Podkaminer of Callan on risk factors  in asset allocation.
  • Andre Perold of Harvard and HighVista on asset allocation .
  • Keith Ambatcheer on long-termism. (pension-oriented, but relevant here, too.)
  • Andrew Ang of Columbia on asset allocation .
  • NEPC on private equity, here and here .

Saturday, 20 September 2014

CalPERS Hedge-quake?

CalPERS recently announced its intention to divest from hedge funds. [CNBC report ] If the investment committees that EndowmentInvestor knows are any indication, the decision is generating a great deal discussion.

Should your endowment or foundation follow suit?

There are a number of reasons to be skeptical:

  • CalPERS size doesnt make them right
  • Size is even a hinderance—more $$$ (which CalPERS has to put to work) dilutes alpha
  • CalPERS is sometimes a contrary indicator—two CIOs we know actually contend that a kneejerk response to do the opposite of CalPERS is a good default choice
  • While divesting $4 billion sounds like a lot of money, it is too small to move the needle at CalPERS
  • At some level, CalPERS rationale [discussed below] isnt really news—it is the result of known issues and a relatively-slow analysis process
  • Your circumstances are not CalPERS circumstances

Nonetheless, CalPERS decision does highlight some important issues:

  • Fees matter crucially
  • Simple investing is a virtue (and HFs are complex)
  • Many hedge funds are merely mid-beta products that dont offer a great deal of diversification when its really needed

What, then, to do?

  • Scrutinize your hedge funds for banal, yet expensive, mid-beta products—then cut them
  • Scrutinize your all-in hedge fund costs
  • A huge portion of the anticipated hedge fund alpha may disappear to fees
  • Consultant costs are real
  • Each layer of fees, base or carry, is real and worth counting
  • Consultant, staff, and board time is a cost
  • Seek out truly diversifying hedge funds
  • Be open to recent ho-hum performance from hedge funds that do offer true diversification
  • Assure your hedge fund allocation at the end of this analysis is large enough to be meaningful

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