Why does the smart money keep flunking Investing 101?
During the 2008-09 global financial crisis, many of the world’s biggest investors found themselves in dire need of cash because they had sunk too much money into assets that couldn’t be publicly traded.
Now they’ve made the same mistake all over again.
Over the past couple of decades, no group of investors has piled into what are called alternative assets more eagerly than the endowment funds of major colleges and universities. In their rush to emulate the stellar success of Yale University’s endowment head David Swensen, who died in 2021, educational institutions pulled tens of billions of dollars out of stocks and bonds and poured it into hedge funds, private equity, venture capital and other investments that don’t trade publicly.
The result looks nothing like the portfolio of 60% stocks and 40% bonds that has long been a guidepost for many investors. On average, in fiscal 2024, educational endowments with more than $5 billion in assets held only 2% in cash, 6% in bonds, 8% in U.S. stocks and 16% in international stocks, according to the National Association of College and University Business Officers. That left two-thirds of their total holdings in private funds and other non-traditional assets that can’t readily be turned into cash.