“Everyone wants to be like Yale,” Gemmer Asset Management’s Charles Blankley began during his session at FPA 2013 NorCal Conference in San Francisco on Tuesday.
Tilted “Alternative Investing: Opportunities, Pitfalls and an Assets Manager’s Approach,” he added that the alternative space, especially liquid alternatives, has grown significantly over the past 10 years.
“We want to believe in a magic white unicorn that is perfect for every portfolio, but it’s easy to be skeptical in this business of the pitches that come through.”
The poster children for alternative investing are large endowments, he noted, so he concentrated much of the presentation on the challenges and advantages with which large institutions grapple.
Blankley started with a simple definition; alternatives are anything other than long-only equity and fixed income.
He then revealed that the average endowment had a performance of about 6.2% over 10 years, which, when compared with the S&P 500, “is not all that good.”
“However, there is a difference is the performance of large endowments versus smaller endowments. There is a 1% difference in performance over a five-year period and a 1.6% performance spread over a 10-year period, which is significant.”
Smaller endowments are typically invested in hedge funds, he added, while large endowment are able to use their connections and pricing power to gain access to private-equity deals.
He then listed the following advantages large endowments have over advisors and their smaller counterparts:
1) They have an average of 25 full-time investment professionals. Investing in alternative strategies is time intensive and requires a lot of expertise.