Eye on Endowment-Style Investing

A question came in about university endowment fund investing and how to emulate those funds. Mebane Faber (articles on SA) has done far more work on this and if this is something you care about, you do need to read his writing.

The two endowments that get the most attention are Harvard and Yale. Some of the other prominent ones I have heard of include University of Virginia and Rice University.

The fund that has had the best returns, by far, but gets almost no attention, is the endowment at Grand Lakes University (pictured here). You probably know about their diving team, but no one talks about the endowment.

Seriously, trying to emulate an endowment seems less than ideal to me. This is not about their results, but more about our access. By now, everyone knows Jack Meyer (the chief at Harvard Management before Mohammed El-Arian) did very well buying timber land. Timber has a low correlation to US equities and the supply and demand characteristics have been favorable more often than not.

I believe in the idea enough that I own Plum Creek Timber (PCL) for quite a few clients. Claymore has a timber stock ETF coming fairly soon that I will write about for TSCM and depending on what's under the hood I might swap, we'll see. My belief in the idea notwithstanding, I don't really think of PCL as being similar to owning acreage in New Zealand like Harvard was able to do (not sure if they still own any).

Further, I would not think of any of the open ended 130/30 OEFs as being the same as a long/short hedge fund either. If you have any interest in buying a 130/30 fund, take a look at a lot of them on a chart. Plenty of them did very poorly. Some of the other hedge fund strategies they might employ probably aren't available, conceptually, in an exchange traded product.

As far as private equity goes, I do not think of the private equity ETFs (there are two now) or the component stocks in those ETFs as being the same thing as a private equity fund. Someone could probably argue they are close, but I just don't think they capture it.

These areas comprise most of the endowments. Regular old stocks and bonds will be the vast majority of your investment portfolio, but not so with the endowments.

Just because our portfolios will not look like a college endowment does not mean we can't learn a lot anytime David Swensen or the like gets interviewed or writes an article. This same sentiment probably applies to all the luminaries in the field, but I just don't think our portfolios will look like theirs, Mebane's great work notwithstanding.