4 ms·

Not a lawyer, but I doubt it's a case. Endowments have much longer investment horizons and typically lower risk appetite that wouldn't typically have an invest

Not a lawyer, but I doubt it's a case. Endowments have much longer investment horizons and typically lower risk appetite that wouldn't typically have an investment policy tilted towards 100% equities. They likely have a fair amount of investment in fixed income, which is always going to under-perform equities in the long run. That said, ~5.5% below the market every year is a pretty shitty result, at least worth putting someone's feet to the fire over.

mlthoughts2018 6y ago
Attempting to bring the suit is likely itself just a smear tactic, to apply pressure to fire someone.
- sct202 6y ago
  He is a former chairman of the fund, so it's definitely meant as a slight. https://businessden.com/2020/07/19/former-chairman-donor-sues-cu-foundation-over-investment-returns/ https://businessden.com/2020/07/19/former-chairman-donor-sue...
Lazare 6y ago
> Endowments have much longer investment horizons and typically lower risk appetite that wouldn't typically have an investment policy tilted towards 100% equities. That does make some sense, but actually endowments typically invest quite a bit in in riskier asset classes. From https://caia.org/aiar/access/article-1160 https://caia.org/aiar/access/article-1160: > The average US endowment fund held roughly 70 per cent in traditional asset classes (public and private equity, bonds and cash) with the remaining 30 per cent invested in alternative assets. Alternative asset classes basically means "anything other than stocks and bonds", and includes stuff like derivitives, commodities, PE deals, venture capital, etc. And CU's investment in alternative asset classes is called out explicitly in the complaint. So I don't read this as a complaint that CU is playing too safe, it's that they made too many risky bets, and lost. I'm not sure that makes the law suit any more viable, but "the endowment gambled away my donation" is a much more sympathetic complaint than "the endowment sunk my donation into bonds instead of gambling it like I'd hoped"!
- smabie 6y ago
  The alternative assets are less risky, because they have less market exposure, and when uncorrelated (or less correlated) return streams are mixed together, the volatility of the portfolio is reduced. It's very common that a shitty investment with high volatility and low returns can actually improve the risk adjusted returns of a portfolio. Like gold, for example. Also, hedge funds are significantly less risky than holding the S&P 500, since most funds have less than 100% net long exposure. And market neutral funds have 0% net long exposure.
  - wbl 6y ago
    That's what the marketing department says. The actual returns paint a rather different picture.
  - rmrfstar 6y ago
    > The alternative assets are less risky, because they have less market exposure If you're including PE in there, you are way off base. According to the assumptions in BlackRock's Aladin platform, global buyout has an equity beta of something like 1.6.
    - smabie 6y ago
      I mean, that's just one, old, moderate sized fund. I couldn't tell what PE's total beta exposure is, but I would unsurprised if the variance between different funds is very, very, large. Moreover, beta doesn't capture the whole picture. By any chance do you know what the funds correlation to the broader equity market is?
      - rmrfstar 6y ago
        That is their assumption for global buyout as an asset class. You can grab their allocation assumptions at [1]. There is a "Download data" button on the page with the assumptions for a variety of base currencies. You can also back out a ballpark beta from the MM theorems and what we know about company leverage post LBO. See [2] foot note 6. [1] https://blackrock.com/institutions/en-us/insights/charts/capital-market-assumptions https://blackrock.com/institutions/en-us/insights/charts/cap... [2] https://www.aqr.com/Insights/Research/White-Papers/Demystifying-Illiquid-Assets-Expected-Returns-for-Private-Equity https://www.aqr.com/Insights/Research/White-Papers/Demystify...
timavr 6y ago
We don't know what is their risk profile. The goal should never be to beat the market, but to beat the market relative to risk exposure. I don’t doubt though that a lot of money is wasted on fees and salaries can be preserved via passive investing.

mlthoughts2018 6y ago

Attempting to bring the suit is likely itself just a smear tactic, to apply pressure to fire someone.

sct202 6y ago
He is a former chairman of the fund, so it's definitely meant as a slight. https://businessden.com/2020/07/19/former-chairman-donor-sues-cu-foundation-over-investment-returns/ https://businessden.com/2020/07/19/former-chairman-donor-sue...

Lazare 6y ago

> Endowments have much longer investment horizons and typically lower risk appetite that wouldn't typically have an investment policy tilted towards 100% equities. That does make some sense, but actually endowments typically invest quite a bit in in riskier asset classes. From https://caia.org/aiar/access/article-1160 https://caia.org/aiar/access/article-1160: > The average US endowment fund held roughly 70 per cent in traditional asset classes (public and private equity, bonds and cash) with the remaining 30 per cent invested in alternative assets. Alternative asset classes basically means "anything other than stocks and bonds", and includes stuff like derivitives, commodities, PE deals, venture capital, etc. And CU's investment in alternative asset classes is called out explicitly in the complaint. So I don't read this as a complaint that CU is playing too safe, it's that they made too many risky bets, and lost. I'm not sure that makes the law suit any more viable, but "the endowment gambled away my donation" is a much more sympathetic complaint than "the endowment sunk my donation into bonds instead of gambling it like I'd hoped"!

smabie 6y ago
The alternative assets are less risky, because they have less market exposure, and when uncorrelated (or less correlated) return streams are mixed together, the volatility of the portfolio is reduced. It's very common that a shitty investment with high volatility and low returns can actually improve the risk adjusted returns of a portfolio. Like gold, for example. Also, hedge funds are significantly less risky than holding the S&P 500, since most funds have less than 100% net long exposure. And market neutral funds have 0% net long exposure.
- wbl 6y ago
  That's what the marketing department says. The actual returns paint a rather different picture.
- rmrfstar 6y ago
  > The alternative assets are less risky, because they have less market exposure If you're including PE in there, you are way off base. According to the assumptions in BlackRock's Aladin platform, global buyout has an equity beta of something like 1.6.
  - smabie 6y ago
    I mean, that's just one, old, moderate sized fund. I couldn't tell what PE's total beta exposure is, but I would unsurprised if the variance between different funds is very, very, large. Moreover, beta doesn't capture the whole picture. By any chance do you know what the funds correlation to the broader equity market is?
    - rmrfstar 6y ago
      That is their assumption for global buyout as an asset class. You can grab their allocation assumptions at [1]. There is a "Download data" button on the page with the assumptions for a variety of base currencies. You can also back out a ballpark beta from the MM theorems and what we know about company leverage post LBO. See [2] foot note 6. [1] https://blackrock.com/institutions/en-us/insights/charts/capital-market-assumptions https://blackrock.com/institutions/en-us/insights/charts/cap... [2] https://www.aqr.com/Insights/Research/White-Papers/Demystifying-Illiquid-Assets-Expected-Returns-for-Private-Equity https://www.aqr.com/Insights/Research/White-Papers/Demystify...

timavr 6y ago

We don't know what is their risk profile. The goal should never be to beat the market, but to beat the market relative to risk exposure. I don’t doubt though that a lot of money is wasted on fees and salaries can be preserved via passive investing.