Elite contributions with heavy allocations to alternative investments are based on poorly performed and simple indexing strategies. High costs, increased competition, and outdated perceptions of superiority are at the expense of. Isn't it time to reset?
Donations with large allocations to alternative investments have reduced comparable indexed strategies. The average return between Ivy League schools since the 2008 global financial crisis was 8.3% per year. Ivy's distinctive allocation, the indexed benchmark consisting of 85% stakes and 15% bonds, achieved 9.8% per year over the same 16 years. The annual difference, or alpha, is -1.5% per year. This results in a cumulative opportunity cost where the index is displayed to 20%. It's a huge chunk of potential wealth gone.[1]
“Casino Donations: Even Whales Lost in the ALTS Table” (Ennis 2024) shows that alternative investments such as private equity, real estate, and hedge funds account for the poor performance margins of large funds. .
Why do some donations continue to rely heavily on what has proven to be a lost proposal? Fund managers with large allocations to alternative investments suffer from what I call giving syndrome. The symptoms include (1) refusal to competitive state, (2) intentional blindness to costs, and (3) vanity.

Competition situation
When David Swensen (Yale) and Jack Meyer (Harvard) cast their spells in the 1990s and early 2000s, the alternative investment market was relatively small, incho art. Since then, trillions of dollars have been poured into alternative investments, with managed assets increasing by more than ten times. Over 10,000 alternative asset managers are competing for some of the action, competing with each other for the best deal. The market structure is progressing accordingly. In short, private market investment is quite competitive How long will I come back? However, mostly large donation managers It behaves as if nothing has changed. They are denial of the reality of their market.
Fee
Recent research offers an increasingly clear picture of the costs of alternative investments. For private equity Year Cost of at least 6% of the asset value. Non-core real estate costs between 4% and 5% per year. Hedge fund managers acquire between 3% and 4% per year.[2] We estimate that a large donation of more than 60% to ALT will incur a total operating cost of at least 3% per year.
Listen to this now:3% expense ratio for diversified portfolios Operating in a highly competitive market is an impossible burden. Donation, that Don't report their costs Don't argue about them as much as I can say, Regarding cost, it works in See-No-Evil mode.
Vanity
There is a concept that managers of assets in higher education are exceptional. Schools of dozens of people had cultivated the idea that their Investment Bureau was as elite as the institution itself. Others drafted it to the leader You'll be drawn into a special class of investment professionals. Not long ago, veteran observers of agreement investment averaged.
- It's long for the donation fund It is considered to be the world's most managed asset pool of institutional investment employing the most capable people; Assign assets to traditional and alternative managers that can be truly focused and can truly do in the long run.
- Donations seem particularly suitable [beating the market]. They attract talented, stable staff and pay well. They exist It is close to business schools and economics departments with Nobel Prize-winning faculty members. Managers around the world see them as highly desirable clients.[3]
It's stupid. It's not surprising many Fund managers believe that, according to legacy and lore, they are obliged to be exceptional investors, or at least act as they do. But ultimately, the illusion of superiority gives way to the reality that competition and cost are dominant forces. [4]
Awakening
Awakening may come from a higher up when the trustee concludes that the status quo is unacceptable.[5] That would be an unfortunate honor for donation managers. This can lead to unemployment and damage your reputation. But that You don't need to play that way.
Instead, donation managers can start gracefully working on how to get out of this dilemma. Without fanfare, I could have set up an indexed investment account with a stock bond allocation of 85% to 15%, for example. You can then concentrate cash from adding gifts, account liquidation, and distributions to index accounts as an institution's cash flow needs permit. At some point they can declare a Practical An approach to asset allocation. This will periodically adjust your asset allocation in favor of active or passive strategies.
Or, as Indiana Senator James E. Watson said, “You're Don't lick it. And he adds, “And do it quietly just like you.”
reference
Ben David, Yitzhak and Billul, Justin and Rossi and Andrea. 2020. “Hedge Fund Performance Performance. Available at nber Working Paper No. W27454, ssrn: https://ssrn.com/abstract = 3637756.
Bollinger, Mitchell A., Joseph L. Parisian. (2019). “Look at private real estate returns separately for each strategy.” Journal of Portfolio Management45(7), 95–112.
Ennis, Richard M. 2022. “Is a donation manager better than others?” Journal of Investing31(6) 7-12.
–…. 2024. “Casino donations: Even whales lose at the ALTS table.” Journal of Investing33(3) 7-14.
Rim, Wayne. 2024. “Access to the private market: How much does it cost? Financial Analyst Journal80:4, 27-52.
Phalippoou, Ludovic, and Oliver Gottschalg. 2009. “Private Equity Fund Performance.” Financial research review 22(4):1747–1776.
Siegel, Lawrence B. 2021. “Don't give up on the ship: the future of the donation model.” Journal of Portfolio Management (Investment Model), 47(5) 144-149.
[1] Fixed a 2022-2024 fund return for distortion caused by reported NAV delays. I did this. This was done in conjunction with the last three market returns using regression statistics from the last 13 years. (The revised returns were actually 45 bps per year than the reported series.) We created a benchmark by regressing the Ivy League average return series with three market indexes. The index and its approximate weight are Russell 3,000 shares (75%), MSCI ACWI Ex-US (10%), and Bloomberg US total debt (15%). The benchmark is based on returns from 2009-2021.
[2] See Ben-David et al. (2020), Bollinger and Pagliari (2019), Lim (2024), and Phalippoou and Gottschalg (2009).
[3] See Siegel (2021).
[4] My research consistently shows that large funds achieve lower risk-adjusted returns than public pension funds, particularly aggressive investment management, particularly those that are much less for alternative investments. See Ennis (2022).
[5] Harvard estimates they are paying more than they incorporate tuition fees.