2009
Asset allocation?
Filed Under (Hedge Funds) by Admin on 08-10-2009
Asset allocation? The “endowment model” was once seen as the “solution” for how to invest for the long term. Sadly as some universities have found out to their cost, the model was flawed and overexposed to a bad economy. It was heavily long biased, higher risk and not hedged. Despite being asset diversified, it was insufficiently strategy diversified. The ONLY thing to overweight in any portfolio is alpha; not beta and certainly not illiquid “alternative” betas. A dynamic investment universe cannot be optimally navigated with a static or occasionally rebalanced asset allocation. A bad economy increases the need for a good portfolio.
Economic fluctuations ought not have a deleterious effect on portfolio growth or asset/liability matching whether you have $1,000 or $1 trillion to invest. Many long term investors forgot that they still need SHORT TERM cash and income. Having so much tied up in illiquid assets makes it difficult to be agile enough to capture and adapt to the changing inefficiencies that the market ALWAYS makes available. Why commit so much to 10 year lockups and ongoing capital calls when there is vast alpha available in liquid markets? The OPPORTUNITY cost from overweighting illiquidity was very expensive. And where was the scenario analysis and stress testing to construct a TRULY robust portfolio? When liquid assets sneeze, similar illiquid assets catch pneumonia.
