Modern Portfolio Allocation

A number of institutional and individual clients that I helped over the years had heavy weightings to alternative investments. These clients either had alternative investments to begin with or wanted more of them to add to existing portfolios. Clients with alternative investments tended to outperform the portfolios of clients demanding all equities, fixed income, cash, or a combination of the three. A number of the largest endowments have heavy weightings to alternative investments. A larger allocation to alternative investments most likely explains why endowments had better performance compared to public pensions over the past ten years. According to the National Association of College and University Business Officers, “Endowments with assets over $1 billion generated the highest average return for all periods.”1 “Big government-employee pensions reported median returns of 13.43 percent for the year. Funds with less than $1 billion in assets, which don’t invest as much in so-called alternatives like private equity, hedge funds and real estate, had median returns of 12.47 percent, according to Wilshire.”2