He learned how difficult it was for active managers to outperform market averages, “especially<br />year after year,” he said, adding, “I’m a big believer in passive investment.”<br />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<br />and 20 percent of any gains — “is ridiculous,” Mr. Morris said.<br />As they say on Wall Street, ‘Where are the customers’ yachts?’ I’m not going to play that game.”<br />Houghton’s experience with hedge funds predates Mr. Morris’s arrival on campus,<br />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.”<br />As Houghton’s experience suggests, the past year’s disparity in results between the large<br />and small endowments can almost entirely be explained by the differing allocations to alternative investments, especially hedge funds.<br />The answer is pretty simple: Houghton got out of hedge funds<br />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.<br />Endowment Sweepstakes: How Tiny Houghton College Beat Harvard -<br />The hotly competitive returns of college endowment performance are out,<br />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.
