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Here's an interesting chart showing convergence of rolling 10 year returns across the Ivy League endowments. Despite the recent rebound in returns, it has been harder for endowments to differentiate their performance vs. peers, unlike the amazing dispersion among the Ivies during the era from the end of the Internet Bubble up until the 2008 Great Financial Crisis.

"To gain alpha, institutional investors have many avenues. For large investors, the endowment model has traditionally worked well. However, it can lead to overdiversification and pose challenges for smaller investors looking to replicate the model, according to a new paper."

Many endowments have suffered from low 10y annualized returns over the past decade, falling short of their rough 7% return hurdles of spending + inflation. That is why it is heartening to see the 10y annualized return for the S&P 500 finally exceed 10% as of the fiscal year ending June 30, 2018, the first time since FY 2005.

The similarity in performance between endowments and public pensions will likely persist as public pension portfolios continue to look more like those of endowments.  Public pensions have ramped up use of alternatives in the hope of achieving higher returns to close widening funding gaps.  Public pensions also have similar target returns of 7-8% versus endowments' return hurdles of roughly 5% spending + inflation.

The 5y chart clearly proves the Endowment Model adds value for many, yet it delivers a wide range of outcomes. So the question is not if the Endowment Model works or not, but “Does it work for your institution?” Those who consistently underperform a basic benchmark with higher risk (in the worst quadrant) are jeopardizing their long-term missions. Fiduciaries have a responsibility to consider a better investment solution which may include index funds to improve performance and portfolio structure.

The 70/30 and 60/40 balanced benchmarks hint at what the average annual endowment return might be for FY 2018 (for the 12 months ending June 30, 2018).  

The outperformance of the large $1+ billion endowments vs the 70/30 global stocks/US bonds balanced benchmark can be seen in this graph of a rolling 3 year annualized return average from 6/30/1989 to 6/30/2017.

This updated chart shows the NCSE endowment return average continues to be historically within the ballpark of the 70/30 and 60/40 (global stocks/US bonds) balanced benchmarks.

Quote in P&I Article: U.S. and Canadian endowments are struggling after producing the worst average annual return since the financial crisis low point resulting in an aggregate asset drop of 2.6%.

“A low-return environment could very well persist in the near term, making it more challenging to achieve returns that keep pace with an endowment return hurdle of inflation plus spending, which require returns to be better than 7% to 8% over the long run,” said Michael Karris, president of EndowBridge Capital LLC, Princeton, N.J.

Here's a graph of average endowment returns vs some benchmarks I follow. It could serve as a rough estimate of what the average FY 2017 endowment return might be (for the 12 months ending June 2017).

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