Endowments with active management receive higher returns net of fees from U.S. equity allocations, according to a new white paper released by Commonfund Institute.
Commonfund conducted a longitudinal analysis of the NACUBO-Commonfund Study of Endowments results from 2006 to 2013 to evaluate whether active management was related to higher endowment returns in U.S. equities over time.
Researchers also analyzed the data to evaluate which endowment characteristics were related to higher levels of performance over time.
ThinkAdvisor presented the 20 richest colleges in the 2013 NACUBO-Commonfund Study last week.
The white paper said active management for endowments was significantly positively related to higher returns net of fees from U.S. equity allocations over the evaluation period.
Moreover, endowments with chief investment officers or offices of CIOs were better able to earn incremental positive returns from active management than those without them.
In addition, larger endowments were better able to earn incremental positive returns from active management than the smallest endowments. However, the effect appeared to diminish as endowments increased in size.
Researchers determined that the effectiveness of an actively managed investment portfolio depended not only on the skill of the investment managers, but also on how truly active they were.
The paper said many mutual funds purport to be actively managed, but stay fully invested regardless of market conditions, with only minor allocation adjustments over time.