The Spectacular Failure of the Endowment Model

In my 2007 book, The Big Investment Lie, I wrote: "Sauntering through the expensive, glossy outputs of the professional investment field, you may glimpse arcane, sophisticated-sounding articles, suggesting the discourses of an elite corps of exquisitely knowledgeable experts. … Yet in spite of the self-serving message trumpeted to both insiders and outsiders by these arcana – ’we insiders are smart and extraordinarily capable’ – the fact is that professional investors do not do better than the random investment picks of a gaggle of monkeys.”

This could not apply better than to the professionals who run, manage, and recommend strategies for pension funds and university endowment funds.

Richard Ennis’s findings

Richard M. Ennis was for many years the CEO of the highly respected institutional investment consulting firm EnnisKnupp and served as editor of the Financial Analysts Journal. He has recently been studying the investment performance of U.S. public pension funds and endowments. He has published previous articles about his investigations, cited here.

He just posted what he called “a capstone paper to three others I have published in the last year.” It summarizes his previous findings and discusses what might have caused them and what to do about it.

The investment performance of U.S. public pension funds and endowments in the 12 years since the 2008 financial crisis has been nothing short of abysmal; especially the performance of the endowment funds of top universities, such as Harvard, Stanford, and Yale.

Yes, that Yale, the one that won top honors for investment performance in a previous era, and continued to be managed by the late, lamented and celebrated David Swensen during the period Ennis studied.