As a group, lemmings have a rotten image, but no individual lemming has ever received bad press.
— Warren Buffett
Professional investors, especially those working for University endowments, are supposed to have many advantages that most average retail investors don’t — access to the best research, written investment policies to take the emotions out of investing etc. But when it comes to performance chasing, these professional investors can put small investors to shame.
A recent example can be found in the behaviour of giant University endowments. These professional money managers watched David Swensen (author of Unconventional Success) outperform the stock markets by a wide margin by investing in alternative assets such as hedge funds, private equity, real estate, timber etc. and decided to copy the approach (hat tip to The Wealthy Boomer for pointing to the article):
Princeton, the Massachusetts Institute of Technology, and Bowdoin College hired Swensen protégés to run their endowments. By the 2007 fiscal year, colleges were devoting 42 percent of their endowments to alternative investments, up from 23 percent in fiscal 2000, according to Commonfund, a money manager for nonprofit institutions.
Perhaps unsurprisingly, it hasn’t worked out too well:
Nearly every sort of alternative investment has been slammed, undermining Swensen’s diversification rationale, and his advice to downplay liquidity has backfired. With private donations dwindling and students clamoring for aid, universities that followed the Yale model find themselves in a plight that could be called cash-22. The publicly traded stocks they still own have plummeted in value, leaving the schools overdependent on illiquid alternatives—and constrained by contractual obligations to invest even more. The Yale model assumes returns when private holdings go public, but no initial public offerings are taking place.