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“End of the game.” Investors are looking for a new model after years of great achievements


Institutional money managers face a bleak investment prospect, chasing them for the next big idea hunt decades later. David Svensen The revolution began when he received a donation from Yale in 1985.

This is an urgent issue. “Assets like Svensen, which run large money institutions such as pension schemes, donations or sovereign wealth funds, face one of the most complex investment landscapes in history.”

In: Bond bull rally, which leads to a decrease in the level of profitability, means that expensive sources of income remain in the world markets. Even European bond yields are now lower than they were 10 years ago owed by the US government.

High core asset prices mean that bonds, usually portfolio ballasts, are unlikely to provide much protection if stocks are shaken again. At the same time, stock markets in many countries are trading high, limiting their chances of making a profit.

“The fall in interest rates was the engine of the twin market. You could not lose for 40 years. But that game is over now, so what are you doing? ” said Stan Miranda, Head of Chair Partners Capital:, which manages $ 40 billion on behalf of donations, family offices and charities.

This is a question that many investors are asking now, but few have good answers. But some believe that the future may be Canadian, where some large pension plans have introduced a DYI approach to large investments.

Based on historical estimates and earnings, AQR Investment Group now estimates that a traditional 60/40 portfolio – The split between 60% of the shares and 40% of the bonds will return to only 2.1% per annum after calculating inflation for the next 5-10 years. In the coming years, the US 60/40 portfolio will return a meager 1.4 percent, up from an average of almost 5 percent since 1900.

Back in the 1980s, Swensen realized that the 60/40 portfolio was a bad idea for institutions like Yale. Investors with no longer time horizons, no risk of repurchase, may fluctuate more in the short term, do not need a very secure but low-yield fixed income, and may spend years investing their money in investments.

After that premise, Swensen withdrew Yale’s bond-backing in favor of stocks, plowing more aggressive but diverse investments into billions. private equity, venture capital, hedge funds, even timber. This has helped Yale earn an average annual profit of more than 12 percent over the past three decades.

Yale donations grew significantly during the Svensen economy

The problem is that many people have imitated the model of Swansen Yale, but successfully copied by a few.

Copying the allocation of Yale assets is theoretically straightforward, but part of Swensen’s “secret sauce” was his ability to pull out money managers who could backtrack on their business, to invest as soon as he could to keep Yale money. But nowadays many high-quality hedge funds are closed for new investments, և best venture capital և private joint stock companies cover the amount of their funds.

Moreover, what was once a pioneer is now commonplace. According to the National Association of College և University Businessmen, the US Medium Fund now has more than half of its money in alternative “real assets” – property – infrastructure. Two decades ago, it was less than 10 percent.

Distribution of Yale donation assets

This channel shows no signs of slowing down. Most investors are stepping up alternatives to counter the gloomy outlook for key markets, said Mohamed El-Erian, a former Harvard CEO. “The reason these vehicles are so popular is that they allow you to use levers without showing that you used levers because they are in the car,” he said.

Some proponents of the industry worry that doubling the trend of modern areas will, at best, ruin their return and, at worst, dangerous fuel bubbles. Instead, some argue that the next major development of the Yale Institutional Investment Model will have a Canadian flavor.

Ten-year annual yield chart (%).  showing that Canadian pension funds are gripping the fist

Several Canadian pension projects have built large in-house investment teams to buy companies և infrastructure projects directly, either by a private equity partner or by replacing them entirely. In-house teams can be costly, but not as expensive as the hefty fees charged by private equity.

The results are favorable. Partner Capital estimates that over the past decade, Canada’s five largest retirement plans have averaged about 10 percent annualized annual return, which is comparable to Yale’s performance, well above the US average of 7.3 percent.

However, copying Canadians can be as thorny in practice as copying the Yale model, warns Mark Anson General fund, a non – profit group that manages $ 26 billion in charitable donations to have their own investment teams.

He notes that directing investments requires large in-house teams,: their salaries should be competitive to attract experienced, highly qualified staff, which can be controversial in some grant or state pension programs. Moreover, poor publicity can be difficult for many institutions if investment is weakened.

“When you get into the devilish details, it’s harder to do than people think,” says Anson.



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