Big universities having very little in bonds? It's not that hard to match expected income (bond interest) to projected liabilities (tuition and operating expenses) one or two semesters out. Thanks a lot, Dave Swensen. The Yale model was innovative, but outsourcing much of your strategy to multiple managers invites trouble. Funds-of-funds that charge fees-of-fees are neat conversation pieces at cocktail parties but not good for much else. There's only so much investment talent to go around, you know.
No wonder Sequoia Capital told its portfolio companies not to count on cash infusions from here on out. They probably had advance warning from endowments that the check would be a few quarters late, if it arrived at all.
I guess someone will have to break the bad news to the preppies at these schools that there will be less foie gras and more grilled cheese sandwiches in the dining halls. Boo hoo.
I still like Dave Swensen's overall concept, but its execution by endowment managers has been flawed. Endowment CIOs simply have too much faith in multilayered teams of investment managers. Mr. Swensen has also argued that the more intermediaries you place between a client and his money, the less value you add as a portfolio manager. Warren Buffett is able to make a multi-strat approach work because he looks at his portfolio selections as capital infusions into real businesses and not slices of statistically non-correlated asset classes.
There's a lesson here for aspiring portfolio managers. Think like a corporate treasurer or operations manager when you make investment decisions.
