The 60/40 stock-bond portfolio, given up for dead in recent years, is outperforming almost all the sophisticated endowment portfolios at elite educational institutions.It’s not even close, according to results released this week by most colleges and universities for their fiscal years ending June 30. In contrast to a 12.2% return for a plain-vanilla 60/40 portfolio, Ivy League university endowments produced returns in the low single digits — if they made any money at all.
Harvard’s endowment, for example, has just 11% invested in public equity and 6% in bonds, according to N.P. Narvekar, the CEO of Harvard Management Company, which manages the university’s endowment. Almost all other college and university endowments have a similarly low allocation to public markets and high allocation to alternative assets. This is why their latest fiscal-year returns are so closely clustered together.
“Swensen got to the alternatives banquet table first and loaded up on lobster tails and prime rib,” Bernstein wrote in an email, “and those who followed … got the tuna noodle casserole.” “That’s 10% of excess return, which covered the 2 and 20,” he said, referring to hedge-fund fees of 2% of assets under management and 20% of profits. “Now there’s $3 trillion chasing the same alpha the excess is only 1%.” That isn’t even enough to pay the hedge-fund fees, of course.