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Institutional investors are generally more sophisticated than individuals. For the most part, institutions have professionals investing on their behalf and have access to a broader universe of investments.

Despite this, long-term results have been generally underwhelming.

A December 2018 study of some 28,000 non-profit endowment funds found that the typical endowment fund under-performed a 60/40 combination of the equity and Treasury bond market indexes by about 5.5 percentage points annually.

Similarly, a 2014 study by Vanguard found that smaller endowments perform worse than the larger ones, see below:

Some of the reasons for the above results are the same as for individual investors:

  • Many institutions also operate without a plan (e.g. a formal Investment Policy Statement) or don’t follow one
  • Institutions also make investment decisions based on emotions (i.e. chasing performance or abandoning a strategy due to a temporary draw-down)

Many institutions also embrace investing complexity in a mistaken belief it will result in superior results. Unfortunately, reality is that complexity is the enemy of performance, in significant part because it increases cost and risk, while reducing transparency and liquidity.

We believe that the most important part of success for institutions lies in coming up with an investment plan that is closely tied to its goals and objectives.

When it comes to implementing an investing strategy, institutions will be better off using high-quality and low-cost investment funds whose strategies are based on evidence (not opinions), are transparent, and implemented and managed in a structured manner.

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