He learned how difficult it was for active managers to outperform market averages, “especially
year after year,” he said, adding, “I’m a big believer in passive investment.”
As for hedge funds and other high-cost alternatives, “the whole two-and-20 model” — in which investors typically pay 2 percent of assets under management
and 20 percent of any gains — “is ridiculous,” Mr. Morris said.
As they say on Wall Street, ‘Where are the customers’ yachts?’ I’m not going to play that game.”
Houghton’s experience with hedge funds predates Mr. Morris’s arrival on campus,
but their performance was “mediocre at best,” he said, adding, “The investment committee and I are on the same page about moving to less active management and lower costs.”
As Houghton’s experience suggests, the past year’s disparity in results between the large
and small endowments can almost entirely be explained by the differing allocations to alternative investments, especially hedge funds.
The answer is pretty simple: Houghton got out of hedge funds
and all alternative investments a year and a half ago, and moved the entire portfolio to a mix of low-cost index funds and mutual funds at the fund giant Vanguard.
Endowment Sweepstakes: How Tiny Houghton College Beat Harvard -
The hotly competitive returns of college endowment performance are out,
and the results have again shaken the higher education elite down to their Ivy League roots: The smallest endowments — those with total assets under $25 million — outperformed their billion-dollar-plus rivals for the second year.