Swensen favored allocating assets toward private equity, hedge funds and venture capital rather that stocks. Over Swensen’s 35-year stewardship, the Yale endowment generated annualized returns of 13.1%, beating a traditional portfolio of 60% stocks/40% bonds by 4.3% annually, according to the university.
High Fees
The largest two of New York City’s five pension funds -- the $104 billion teachers’ and $88 billion civil employees’ funds -- have earned an annualized return of 9.32% and 9.34% before fees for the 10-year period ending June 30, 2021.
By comparison, Vanguard Group’s Balanced Index Fund, which invests roughly 60% in stocks and 40% in bonds returned 10.3% annualized for the same period.
For pension funds’ that spend more than $1 billion on fees to Wall Street, “the results clearly are not all that good,” said Jeff Hooke, senior finance lecturer at Johns Hopkins Carey Business School and author of ‘The Myth of Private Equity’.
Between high fees and middling returns, alternative assets drain $30 billion per year from public pensions, according to Hooke.
New York City’s teachers’ and civil employees’ pensions’ private equity investments earned 12.25% and 11.5%, respectively, on their buyout, venture capital and “special situations” funds since the late 1990s. That’s about the same as they would have earned by putting the money into the Russell 3000, according to pension documents.
Their “opportunistic” fixed-income investments have underperformed their benchmark by 1.74% and 1.3% respectively, as of June 30, 2021.
This article was provided by Bloomberg News.